30th June 2017 saw the implementation of the Pension Licensees (Conduct of Business) & Domestic and International Pension Scheme and Gratuity Scheme Rules 2017 (the “Rules”). These were drafted by the Guernsey Financial Services Commission (GFSC), with an amended and updated version issued in August. Pensions are, of course, a topical issue in Guernsey and the local financial community is heavily involved in offering a very wide range of products, from International Pension Plans and Gratuity Schemes to Bespoke and multi member RATS. So, for Guernsey pension providers the legislation offers a boost in creditability in the premier International market place
Who do the new Rules apply to?
They affect all Guernsey fiduciary licensees carrying out pension or gratuity scheme business and the pension schemes that they form, manage or administer.
What are they replacing?
The Rules are not replacing any specific piece of legislation. Aside from the parts of the Retirement Annuity Trust Schemes Rules (2015) applicable to Guernsey there has never been a regulation specifically intended to deal with pension providers or pension schemes. Previously, the only significant legislation was that relating to approval and recognition of pension schemes for tax purposes. With the new Rules that is all changing.
What’s the motivation behind the change?
Primarily, it is a positive opportunity for Guernsey pension providers to improve its global competitiveness. The new rules will ensure that all those who are part of the sector in Guernsey are adhering to global standards of recognised best practice and are up to date in terms of the latest international developments. They also provide the opportunity for better protection for consumers. Pensions can be a complex area for those without experience and the implementation of the new rules should ensure that consumer inexperience doesn’t expose individuals to potentially negative situations or loss. The rules are also designed to bring into line any in the industry who might be testing the boundaries of fairness or reasonableness.
It’s no coincidence that this new set of rules has arrived at the same time as the first deadline under the Organisation for Economic Co-operation and Development's Common Reporting Standard (CRS). The Income Tax (Approved International Agreements) (Implementation) (Common Reporting Standard) Regulations 2015 came into force on 1 December 2015 and enshrined the CRS into Guernsey law. Under those regulations, reporting financial institutions in Guernsey are obliged to comply with the due diligence requirements that are set out in the CRS, as they apply locally. These are primarily designed to allow the identification and reporting, where appropriate, of certain information to Guernsey’s income tax office – which is then passed on internationally. The CRS has been developed as a tool to help combat tax evasion but brings a potential administrative burden with it.
The CRS exemption
Given the pressure the CRS could place on Guernsey pension providers, the opportunity that the Rules present for an exemption is an attractive one. In order for a retirement or pension account to be exempted from the CRS it is necessary to satisfy a number of criteria. One of these is that the account must be subject to regulation – which is why the new Rules have come into effect to provide new regulation of a previously unregulated area at the time that they have.
Are all Guernsey pension schemes exempt?
No, there is no automatic exemption for any scheme and just falling within the remit of the Rules won’t get you there. There are a number of different criteria for CRS exemption and a pension scheme must satisfy all of these to be freed from the CRS obligations. So, although the new Rules certainly take the first step for Guernsey schemes, the next part is up to each individual scheme. It’s important to verify that an exemption is applicable – as opposed to assuming that one exists – and in most cases that will require specialist legal advice.
What changes will the new Rules introduce?
The Rules make a number of changes to the pensions landscape in Guernsey, in particular:
Revoking the RATs rules. All RATS, including bespoke and multi member RATS will now be regulated with other pension schemes under the Rules, which revokes the former RATs rules (save a couple of sections).
Inclusion of gratuity schemes. Gratuity schemes were not included in the first draft of the Rules. However, between June and July 2017 they were added so that they are now regulated alongside pension schemes. This will deliver a boost to Guernsey gratuity schemes, providing an opportunity to compete on an international stage and with regulated products offered by other jurisdictions.
Fiduciary licences. The new Rules change the status of formation, management and administration of pension schemes to regulated activities under the Regulation of Fiduciaries, Administration Businesses and Company Directors etc. (Bailiwick of Guernsey) Law, 2000 (as amended). This means that a fiduciary licence has become a requirement for pension businesses in Guernsey and they now rank alongside other regulated fiduciary activities.
The benefits of the Rules for Guernsey
• Guernsey now has a modernised regulatory pension framework to ensure the entire industry remains up to date with the latest changes
• The Rules have improved Guernsey’s competitive position
• Members of Guernsey pension schemes and their families are better protected
• Guernsey pension schemes now have a ‘regulated’ product to market
• The opportunity for local schemes to be CRS exempt is significant
• The Rules pave the way for the introduction of the Guernsey Secondary Pension Scheme in 2020.
Implementation of the regulations
Although the final deadline for compliance with the Rules is still over a year away, affected licensees are expected to take action sooner rather than later. From assessing how to ensure that the business achieves a CRS exemption, to providing advice and guidance on internal review – or changes that should be made to comply by September 2018 – obtaining legal advice adds speed and clarity to the process. If you would like more information about the Rules, or the best way to ensure that your business is compliant, we would be happy to help.