Guernsey was one of the world’s leading offshore financial centres just a year ago, but a series of setbacks have torpedoed the tiny island’s reputation.
The Channel Island has seen banks close and last year HM Revenue and Customs brought an end to the provision of Qualifying Recognised Overseas Pension Schemes (QROPS) for new investors – despite it being one of the most popular locations for providers.
More recently, the lucrative VAT loophole, known as Low Value Consignment Relief (LVCR), which allowed firms to sell things like CDs without charging VAT to buyers in the UK, came to an end.
One of the big players which have since stopped selling goods from the Channel Islands is Play.com which is now clearing warehouses of stock.
Last year’s closure to new business of more than 300 approved QROPS schemes which caused a real problem for Guernsey’s finance sector.
QROPS closed to new business
HMRC’s move was unexpected and brought the burgeoning QROPS sector in Guernsey to an immediate end.
To underline the drop in Guernsey’s financial clout on the world stage, the island has seen the number of licensed banks drop a third from 48 at the end of 2008 to 32 now.
That drop in numbers has reflected in the deposits held on Guernsey – falling from £157 billion to £96.9 billion in the same period.
The most recent bank to close its doors is Clydesdale Bank International, which will not take on new business and will cease trading in 2014. The bank’s 19 employees have lost their jobs.
The bank specialised in handling savings for expats.
Other banks which have handed in their licenses in recent years include HSBC Bank International, Yorkshire Building Society and Northern Rock.
‘Son of FATCA’ fears
However, one financial institution which is bucking the trend is Skipton International, described as ‘thriving’ by managing director Jim Coupe, after announcing three years of growth.
“We have a different business models from some of the other institutions which have seen business become more challenging,” he said.
On the horizon is another potential setback for Guernsey’s financial sector – FATCA, or the Foreign Account Tax Compliance Act, which is US legislation compelling foreign financial institutions to reveal details of any US taxpaying citizens and their accounts.
The UK has signed up already and is set to introduce its own version, known as ‘son of FATCA’, which will force financial institutions in Crown Dependencies and territories like Guernsey to reveal details of UK taxpayers.
Guernsey, along with Jersey, says it will not sign up to the agreement ‘unless it is a global regulation’ because they would be put at a competitive disadvantage with financial centres that are not under the control of the UK government.