Guernsey is one of the most reputable offshore banking centers in the world due to its effectively regulated banking sector and wide range of services it provides.
Offshore banking sector in Guernsey is licensed, regulated and supervised by Guernsey Financial Services Commission (GFSC) according to the Banking Supervision Law of 1994. GFSC pay special attention to the detection of unlawful transactions and affairs.
Traditionally international banking institutions coming to Guernsey set up a local office staffed by residents of Guernsey, however recently administered offshore banking unit (ABU) is becoming increasingly popular. Like in Cyprus administered banking unit scheme in Guernsey local bank provides services for foreign banks; therefore foreign banks providing offshore banking services do not need to have set up an office and hire staff. However GFSC supervises administered banking units according to the same standards as local banks. Today around 30% of banks in Guernsey are ABUs.
Guernsey offshore banking sector together with other financial activities is subject to strict money laundering controls according to Proceeds of Crime of Bailiwick of Guernse
y Regulations of 2002. Offshore banking institutions are required to report suspicious transactions associated with terrorism financing and money laundering to the Guernsey Financial Intelligence Service.
In June 2005 there were 50 licensed banking institutions in Guernsey. According to Guernsey Financial Services Commission report in 2007 total volume of deposits in Guernsey banks were £112.7 billion with an increase of 33% compared to last year. Historical figures show that deposits grow from other financial institutions in Guernsey, foreign banks, corporate customers and Swiss fiduciary deposits.
Guernsey services are less popular among offshore banking users than the same services of Jersey Island, however they have an advantage: those who establish offshore company in Jersey and at the same time have an offshore banking account in Jersey are subject to income tax on the interest earned on bank deposit. Therefore having a Jersey company and Guernsey bank account is the best way to avoid taxes legally.
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One thing that should be born in mind if depositing money in Guernsey is that it has an inadequate Depositor compensation scheme, which, although on the face of it offers up to £50,000 compensation, is subject to a number of restrictive limitations. During the past year Guernsey’s retail deposits have fallen by around 20%.
Now with the European Commission intending to raise its retail depositor protection up to 100,000 Euros per person payable within seven days, Guernsey had better get of its laurels and start treating its depositors better.
So far they have an abysmal record allowing landsbanki Guernsey to be placed into administration in October 2008, leaving 1600 depositors £117 million down without any compensation and not a finger lifted by the Guernsey Government to assist them.
Much of the blame for that has to fall at the feet of the Guernsey Financial Services Commission who failed in their due dilligence in the run up to the administration and allowed Landsbanki Guernsey funds to be upstreamed to Heritable plc, a wholly owned subsidiary of landsbanki Islands hf in Iceland, and reliant on Landsbanki hf for cashflow. Heritable was placed into administration on 7th Oct 2008 and Landsbanki Guernsey’s money ended up in their administration pot.
With the prevailing conditions at the time the GFSC should have forced Landsbanki Guernsey to place that money with a third party, not a sister company relieant on Landsbanki islands hf in Iceland.
Beware of depositing money in Guernsey.