Guernsey has a longstanding global reputation as a leading centre for financial services and innovation. Much of its entrepreneurial history has been based on cutting edge or novel products, structures or services. The use of technology to disrupt existing models, create new services and streamline existing processes is an evolution of the flexible and nimble environment that has led to so many “world firsts” over the years.
The States of Guernsey’s Digital Sector Strategic Framework sets out a pathway for the future development of Guernsey’s digital economy and is a demonstration not only of the government’s commitment to this area, but also a clear recognition of the pervasive impact of technology generally. Our existing legislation is broadly drafted and flexible, the regulators are accessible and willing to listen to new ideas and the infrastructure is recognised as a world leader.
As the home of one of the world’s premier eGaming regimes, the support service industry here is used to adapting and using new technologies. The world’s first “blockchain for private equity” solution was deployed in Guernsey, digital identity is a growth area and “Green Funds” and other ESG initiatives are opening up new investment avenues.
Stable regulation is important. As our intellectual property regime is robust, so our data protection regime is also recognised internationally. Guernsey has the important “adequacy” rating from the European Commission and was one of the first jurisdictions outside the EU to develop a GDPR-equivalent legislative regime. In a time of political upheaval, our government is stable, accessible and accountable.
There is a growing energy around the sector – the Guernsey Financial Services Commission (GFSC) supports a “soundbox” programme and was one of the founders of the G-FIN initiative (a global network of financial services regulators with a focus on technology), which shows that the island will remain synched with global innovation in the years to come.
1. Are there any “sandbox” or other regulatory neutral zones?
The GFSC has established an “Innovation Soundbox” which is a cross-Commission team tasked with assisting entrepreneurs to identify and address any regulatory issues arising from potential business ideas. The concept is akin to the “sandbox” model, but is primarily focused on meetings and discussions which might lead to a viable product for market. There are no fees payable for using the Soundbox.
More information can be found at:
The GFSC organised a “Soundbox Sprint” event, where cross-industry panels debated a range of challenges (such as digital identity and accessibility of finance to the disadvantaged). The teams were then tasked with formulating and “pitching” their ideas. Professional advisers (including Appleby) assisted the teams. Further similar initiatives are planned.
The GFSC is a founder member of the G-FIN network of global regulators, which is aiming to share opportunities and knowledge in the technology regulation space and promote collaboration. An open invitation to businesses looking to take advantage of the G-FIN support network was recently announced.
2. Is there a Digital “incubator” or hub?
The States of Guernsey set up the Digital Greenhouse in order to act as a focal point for digital and creative sector businesses and entrepreneurs to work and collaborate. The aim of the centre is to stimulate and accelerate growth and to identify skills requirements, whilst promoting the island as a hub for innovation.
The centre hosts a regular programme of events, open to businesses, schools and members of the wider community. From investor “pitch” events, to coding and digital marketing skills sessions, the building is a focal point for events, training sessions and a working space for a number of digital businesses.
Barclays launched an Eagle Lab at the Digital Greenhouse, providing investment, networking opportunities and supporting and accelerating the growth of the businesses using the Digital Greenhouse.
3. Are there any barriers to entry for foreign technology companies?
There are no barriers to entry for foreign technology companies, though the usual laws and licensing/regulatory requirements in respect of the establishment of a locally-registered entity would continue to apply. However, these vary according to the proposed nature and structure of the business. In general terms, there are no specific barriers to entry, other than assessing the suitability of the business for the local regime.
4. Have traditional institutions embraced new technologies?
As may be expected, the rate of adoption varies across the sectors. Traditional financials services providers have taken steps to embrace new technologies and ways of working, but have yet to be displaced by new technologies. The Digital Guernsey panel provides a link between government, technology businesses and the finance industry. It is notable that most institutions/businesses on island have either adopted or are looking to adopt, new technologies.
The key focus is on ensuring there is an appropriate business case for the adoption. In many instances, the technology is used for “back office” services, to streamline administrative processes, or to improve customer experience (for example, online portals). We anticipate that the rate of adoption and development will increase, in part driven by customer expectations.
5. What forms of legal entity are available for technology companies?
As a leading and flexible jurisdiction, the full range of vehicles is available for use. The most suitable vehicle for use by fintech businesses will depend on individual circumstances. There are various forms of structures available including:
Limited liability partnerships
Non-cellular companies which structure its members’ liability as:
(a) Limited by shares – liability limited to the amount, if any, unpaid on their shares
(b) Limited by guarantee – limited to the amount they undertake to contribute to the company if it is wound up whilst they are a member, or within a year after they cease to be a member
(c) Unlimited – unlimited whilst a member, or for a year after they cease to be a member
(d) Mixed – with shareholders, and/or unlimited members and/or guarantee members
Cellular companies, which may be either:
(a) Protected cell company – cells which are created do not have their own legal personality
(b) Incorporated cell company – cells which are created have their own legal personality
There is no distinction between public and private companies.
6. What AML requirements apply to businesses in Guernsey?
Guernsey endorses the International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation as issued by the Financial Action Task Force (FATF). These standards are reflected in local laws and guidance, which have been recognised internationally.
The GFSC is primarily responsible for regulating this area, whilst the Financial Intelligence Service is the law enforcement body responsible for investigating financial crime and implementing the disclosure and enforcement regimes.
All financial services businesses are required to adhere to AML/CFT requirements, alongside other similar obligations, such as compliance with Anti-Bribery legislation, international sanctions measures and those relating to the prevention of tax evasion.
The principal pieces of legislation are helpfully listed in the Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing, published by the GFSC. Whilst the full scope of the obligations is beyond the scope of this chapter, in essence they entail a business having appropriate processes and procedures to prevent money laundering and terrorist financing. This is principally done through having mechanisms in place to identify and verify those transacting with or through the business and being able to understand the nature and purpose of proposed transactions.
In addition, Guernsey is party to intergovernmental agreements in relation to both Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) disclosure obligations in respect of those individuals with accounts in Guernsey and that hail from jurisdictions covered by those pieces of legislation.
7. Are electronic signatures valid?
The Electronic Transactions (Guernsey) Law, 2000 (as amended) (ETL) puts electronic signatures on an equal footing with “wet ink” signatures and more generally, confirms the validity of transactions effected electronically.
Technologically neutral, the ETL was established to promote public confidence in the validity, integrity and reliability of conducting transactions electronically and recognises electronic records, whether created, stored, generated, received or communicated by electronic means.
“Electronic agents” legislation has also been introduced to facilitate the use of “smart contracts” and related automatically-executed programmed transactions, which not only record, but execute actions without further human intervention. These legislative measures provide the flexibility for future growth in these areas and certainty in terms of their validity.
8. How is personal data protected?
The Data Protection (Bailiwick of Guernsey) Law, 2017 (DPL) came into force on 25 May 2018, the same day as the EU’s General Data Protection Regulation (GDPR) became enforceable. The DPL is legislation equivalent to GDPR and has been heavily modelled upon it, to ensure that Guernsey is at the cutting edge of legislation in this vital area.
Guernsey is recognised by the European Commission as an “adequate” jurisdiction, which means that its regime is treated as “equivalent” to those jurisdictions in the EU, enabling cross-border data transfers to be effected more efficiently. Its response to GDPR is highly regarded at European level and its regulatory body and regulator are recognised internationally for their work.
Data protection and privacy are seen as important focus areas for the island, with data-driven businesses and best practice/thought leadership being a trait of those involved in this area.
Appleby has been heavily involved in the development and implementation of the DPL, including advising businesses on its impact and their response to it. We also have extensive experience of applying this legislation to tech businesses and applications.
1. How are virtual assets regulated?
There is no separate framework for the regulation of virtual assets in Guernsey; however the existing legislative framework is in place to effectively manage and administer such assets (see above in relation to the Electronic Agents and Electronic Transactions legislation).
Whilst there has been no specific case on the position, it is likely that the Guernsey courts would follow the view of the English courts in recognising the Legal Statement on the Status of Cryptoassets and Smart Contracts by the UK Jurisdiction Taskforce of the LawTech Delivery Panel. This recognised cryptoassets as “property”, bringing some certainty to the treatment of such assets.
There is long-established legislation covering securities and investment business, principally consumer-focused. The GFSC has indicated that it will treat applications in the same manner as any other applications made under the relevant legislation, being principally concerned with governance and controls (including AML/CFT risk), investor protection and volatility/custody/liquidity issues.
Projects involving investments in or dealing with virtual assets are likely to be governed by the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (as amended) (POI Law) or the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 (NRFSB Law). The former covers (broadly) those assets which can be classified as “securities” and/or offered through a fund vehicle, whilst the latter (again broadly) captures those businesses effecting “value transfer” transactions which fall outside the scope of the funds/collective investment scheme regime. This might include virtual currency exchanges, for example.
The POI law is principally a piece of investor protection legislation, designed to ensure that investors are fully informed of the nature and risks involved. As such, one of the key issues we always need to identify when working with clients is the nature and substance of the project. Whether a token constitutes a “security” under Guernsey law is a fact-specific question, dependent upon the functionalities of the token.
The POI law contains a list of financial instruments that are “controlled investments” and those which more particularly are “securities” or “derivatives”. Whilst cryptographic tokens are not included on that list, as outlined above, it is their functionality that is important. It is possible that the GFSC may yet adopt a difference in approach between those tokens which exhibit the characteristics of traditional “securities” and those which are more typically utility tokens. There are certain exceptions under the POI Law which might allow for the issuance of utility tokens, but this remains untested.
The most common fund structures are:
- Class A funds (authorised, open-ended funds, typically aimed at retail investors)
- Class B funds (authorised, open-ended funds, aimed at both retail and institutional investors)
- Class Q funds (authorised, open-ended funds, limited to sophisticated investors)
- Authorised closed-ended funds
- Registered collective investment schemes (registered, open or closed-ended funds)
- Private investment funds (registered, open or closed-ended funds)
Registered funds are required to register with the GFSC, but their suitability is confirmed by a Guernsey POI licensee (typically the administrator, which undertakes a review of the fund and its suitability and monitors ongoing compliance). The GFSC places reliance on that confirmation when approving the registration. In contrast, authorised funds are scrutinised by the GFSC, which confirms the authorisation if the relevant requirements are met.
Even if the business falls outside the POI Law, using language connoting involvement or participation in investment business, or holding oneself out as carrying on investment business may bring the activity within scope. It is therefore important that appropriate language is used in all materials and publicity.
2. Are virtual assets subject to the local AML regime?
Yes. Virtual assets are likely to be considered a higher risk for AML/CFT purposes, but are nonetheless caught by the legislation.
3. Is a physical presence required in Guernsey to conduct a virtual asset sale?
No. Depending upon the nature of the token and how it is treated from a regulatory perspective, there may be “substance” requirements to consider, but this is likely to be limited in scope, if at all applicable.
4. Are gambling platforms permitted?
Yes, under the auspices of the Alderney Gambling Control Commission (AGCC). The Alderney regime is one of the most respected and leading eGaming regimes in the world. There is a range of licensing and certification options available to fit the needs of businesses.
There is no requirement to have the servers located within the islands of Alderney or Guernsey, but many operators do make use of this facility, together with the varying services offered by local providers. More information is available via the AGCC website:
We have experience of advising a range of operators, affiliates and technology/service providers and whilst specific structures are beyond the scope of this guide, would be pleased to discuss solutions with businesses interested in making use of the local regime.
5. Can decentralised-finance (DeFi) products be launched from Guernsey?
Yes. Decentralised finance aims to replicate/augment current financial services models/products using blockchain technology. The use of such products is not restricted, subject to compliance with existing laws.
1. Can a crypto-to-crypto exchange be established?
In theory, it would be possible to do so, although as noted above the GFSC is cautious as regards virtual currencies, so detailed plans demonstrating plans for compliance with local legislation (in particular AML/CFT) would be required.
2. Can a crypto-to-fiat exchange be established?
See C1 above.
3. Is a money services licence required for crypto-to-fiat conversion through an OTC desk?
Potentially, yes. To the extent that cryptocurrencies can be both purchased with, and redeemed for, fiat currencies via a Guernsey entity, such transmission is likely to fall within either the currency exchange or money transmission provisions of the NRFSB Law. The POI Law may also be engaged if the asset is considered a “security”.
4. Can a virtual asset project establish a local bank account?
Local banks have traditionally been reluctant to open accounts for projects such as Initial Coin Offerings (ICOs), but for wider virtual assets, much will depend on the nature and scope of the project. Many banks here are headquartered elsewhere and subject to the policy decisions of their wider group structures. There is evidence of a growing acceptance that there may be opportunities in this sector.
However, there is no requirement for a Guernsey registered entity to establish a Guernsey bank account.
5. Can you register as a virtual asset custodian in Guernsey?
There is currently no bespoke registration regime, though custody may be licensable under the POI or NRFSB Laws.
6. Are VASPs subject to the local AML regime?
If a VASP and/or its services fall within the scope of the POI Law, then compliance with the local AML/CFT regime is required. Even if it falls outside the POI Law, then it will likely be captured by the NRFSB Law, which similarly requires adherence to local AML/CFT legislation and requirements.
Schedule 1 to the NRFSB Law sets out the business activities to which the NRFSB Law applies. Relevantly, it includes “facilitating or transmitting money or value through an informal money or value-transfer system or network” and “issuing, redeeming, managing or administering means of payment, including……electronic money”.
1. Are tokenised funds regulated in Guernsey?
In a tokenised fund, an investor’s interest is represented by a cryptographic token, as opposed to shares or other interests or units offered to investors in a more traditional fund structure.
At this stage, there is no separate framework for the regulation of tokenised funds in Guernsey. However, the existing regulatory framework applicable to funds in Guernsey is highly developed and ranges from unregulated eligible investor funds, through lightly regulated Private Funds to the highly regulated retail collective investment funds. Guernsey also recently became the first jurisdiction to launch a “Green Fund”, which ties investment opportunities to environmentally “friendly” requirements.
2. What service providers are required for a tokenised fund?
This will depend on the structure of the fund and the nature of the permitted investors, However, a tokenised fund will generally need to appoint an investment manager, an administrator, a custodian (particularly if an open-ended fund) and legal advisers. In addition, a tokenised fund is likely to appoint an auditor (and where relevant a smart contract auditor) and/or a third party CDD service provider to assist with the onboarding process for subscribers.
3. What CDD is required for token holders?
Guernsey’s AML/CFT legislation will apply to all funds, either directly or through regulation of their service providers. CDD documentation will be needed on all subscribers and subsequent transferees of the token. Each transferee will also need to agree to the subscription terms associated with the tokenised fund.
4. Is there a minimum investment amount?
The minimum investment amount will depend on the nature of the fund and the subscribers who are permitted to be involved (e.g. in certain Qualifying Investor Funds, investors will need to make an initial investment of not less than USD$100,000 (or equivalent) in the fund).
However, in most scenarios, there will be no minimum amount required where subscription is limited to those whose ordinary business activities include dealing with, managing or giving advice on investments.
5. Can token holders redeem their tokens or transfer the tokens they hold?
The rights relating to transferability of interests in the fund will be determined by the relevant fund documentation, subject to the requirements also of the relevant regulatory regime. This will include ensuring subscribers/transferees meet any eligibility requirements and/or acknowledge any risk warnings.
In order for the tokens to be freely transferrable on an exchange, either the fund itself or the exchange would need to ensure that any potential transferee:
- provides sufficient CDD documentation to comply with local AML/CFT laws;
- provides sufficient information to demonstrate that they are an eligible investor; and
- agrees to the subscription terms for the fund.
1. Does Guernsey impose economic substance requirements?
Yes, as a leading offshore financial centre, Guernsey passed legislation creating a regime to facilitate these requirements in 2018.
2. Are there any reporting requirements in connection with economic substance?
Certain companies are required to demonstrate they have “substance” in the island, either by:
- being directed and managed;
- conducing Core Income Generating Activities (CIGA); and
- there being adequate people, premises and expenditure on island.
These requirements apply (broadly) to the following categories of activities:
- Fund management
- Finance and leasing
- Distribution and service centres
- Holding company (pure equity holding)
- Intellectual property
Companies which are subject to substance requirements in Guernsey will need to include in their corporate income tax returns details of their business activities, amount and type of gross income, expenses and assets, premises and number of employees (specifying the number of full time (equivalent) employees, CIGAs conducted and any outsourced CIGAs).
This is a complex area and so we recommend that specialist advice is taken to ensure the requirements are met (or advice on their non-applicability is provided).
3. What penalty provisions apply in the case of non-compliance?
Sanctions for non-compliance with substance requirements include the following:
(a) Financial penalties which may increase depending on the number of consecutive accounting periods the company is in default. These range from £10,000 to £100,000.
(b) Audit for continued non-compliance.
(c) Exchange of information with any jurisdiction where the immediate parent entity, ultimate parent entity the ultimate beneficial owners are tax resident, provided that Guernsey and that jurisdiction have information exchange agreements in place; and
(d) Strike off from the Guernsey corporate register.
Additionally, penalties may apply for failure to supply information or for providing false information and there are criminal penalties for providing false statements and/or false documents.
Guernsey is a common law jurisdiction that has a robust intellectual property protection regime. Its principal legislation is The Intellectual Property (Enabling Provisions) (Bailiwick of Guernsey) Law, 2004, which enables secondary legislation to be introduced as required in a nimble fashion and to take account of technological developments. Legislation covering copyright, unregistered design rights, database rights, image rights, plant breeders’ rights and patents and trademarks has been introduced over the years.
Guernsey has had a number of international conventions extended to it (including the Berne Convention) and continues to work with its international colleagues to ensure it is compliant with other leading conventions.
Guernsey’s Intellectual Property Office has published a helpful guide to the range of protections available:
The Berne Convention was extended to Guernsey in November 2014 and work in relation to other treaties is continuing. Guernsey’s broadly mirrors that followed in comparable jurisdictions such as the UK and Jersey.
Software and code are treated as a literary work and therefore protected for 70 years. Open-source code is not separately regulated or protected in Guernsey.
2. Trade Marks
The main IP rights available to protect branding are registered and unregistered trade and service marks. Trade mark rights give registered owners the right to prevent others using identical or confusingly similar marks to their registered mark. Brand owners can also rely on unregistered trade mark rights through the law of passing off.
Registration gives the owner protection within the Bailiwick of Guernsey, which can then be extended via registration in other jurisdictions. Protection lasts for 10 years and can potentially be renewed for further similar periods indefinitely.
Guernsey operates a dependant register, which means that in order to register a patent in Guernsey, it must first be registered in another jurisdiction. Protection lasts for a maximum of 20 years and owners are required to renew their registration on an annual basis.
4. Trade Secrets
Trade secrets are protected in Guernsey through a combination of common law and rules of equity. A range of remedies are available where trade secrets have been improperly acquired, disclosed or used. In practice, non-disclosure agreements and/or contractual mechanisms are typically used to provide protection.
Confidential information is similarly protected principally through contractual agreements or non-disclosure agreements, or through a common law obligation to keep information confidential. The Guernsey court has typically applied the approach of English courts, subject to modification in certain areas.
1. Trade Licences
All individuals living on Guernsey are required to hold a Permit or Certificate under the terms of the Population Management (Guernsey) Law, 2016 (Population Law).
Every business with a physical presence in the island must apply for Employment Permits for its staff (or be able to demonstrate that those staff members are Certificate holders). The number and type of Permits available will depend upon the requirements of the business, but it is recognised that start-ups or those relocating to the island will need to hire at least some individuals from outside the island in order to develop and grow their businesses.
These restrictions are designed to ensure that the local Guernsey population is afforded suitable opportunities in the job market. Where it is not possible to find a Guernsey native or other individual with the relevant residency requirements, it is possible to request a Permit or Certificate for someone from outside the island; these requests are considered on a case by case basis. A case which aligns to the strategic direction of both the business and the island is likely to be received positively.
There are a range of Permits available, depending upon which are most relevant to the requirements of the role. Permits are usually issued to those whose ability to live and/or work in Guernsey is conditional (by reference to a particular job, timeframe or similar). These conditions are more fully set out in the Population Law. Certificates also vary in nature and effect, but are generally issued to individuals entitled to live and work in Guernsey according to the Population Law.
Given the strong interest in fintech and digital businesses, applications from these sectors are likely to be viewed as increasingly important in the years to come.
2. Tax Matters
There are no specific statutory provisions governing the taxation of virtual currencies. Guernsey does not have goods and services, consumption, inheritance, capital gains or value added tax. Unless exempt, withholding tax of 20% applies to dividends payable by Guernsey entities to Guernsey-resident individuals, but this does not apply to non-resident individuals.
Corporate income tax
Companies incorporated in Guernsey are considered tax-resident in Guernsey and taxed on their worldwide income. However, most are taxed at 0%, with certain activities attracting rates of 10% or 20% (if carrying on regulated financial services business, for example). There are exemptions available for collective investment schemes and entities established for certain purposes related to such schemes.
Personal income tax
Individuals pay a flat rate of 20%, but there are different classes of “residence” which may affect individuals’ tax treatment. These include “principally resident”, “solely resident” and “resident only”, which are banded depending upon the number of days spent on the island in any tax year (or period of several years).
A personal allowance and certain reliefs are available (such as pension contributions or mortgage interest reliefs), and an individual can elect for a cap on their income tax liability in relation to their worldwide income (subject to certain exceptions).
A detailed analysis is outside the scope of this chapter and individual tax advice should always be taken. Whilst the above is a summary of the Guernsey regime, there may be tax implications for beneficial owners in their own jurisdiction.
3. Visas and Work Permits
See G1 above.