Guidance on Company Formation by Fiduciary Licensees

Company Formation by Fiduciary Licensees November 2021

1. Introduction This note provides guidance on the regulatory requirements applicable to fiduciary licensees offering company formation services. This note applies in relation to the formation of companies not only in Guernsey, under the Companies (Guernsey) Law, 2008, but in other jurisdictions. The Companies (Guernsey) Law, 2008 provides that Guernsey companies may only be formed by persons holding fiduciary licences under the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc, (Bailiwick of Guernsey) Law, 2020 (“The Fiduciaries Law”). Providing access to Guernsey companies places fiduciary licensees with the role of “gatekeeper” to an important segment of the financial services industry. A holder of a personal fiduciary licence is not authorised to conduct the activity of company formation.

2. Licensees’ policies and procedures Licensees must comply with the requirements of the Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 (“the Regulations”) and with the Rules contained in the Handbook on Countering Financial Crime and Terrorist Financing (“the Handbook”). The Handbook also contains guidance to assist licensees to meet the requirements of the Regulations and Rules. The Regulations and Handbook apply to all services constituting regulated activities under the Fiduciaries Law. Therefore licensees providing company formation services must include such services within their business risk and relationship risk assessments under Regulation 3 of the Regulations and Chapter 3 of the Handbook as they would any other services they provide. Consideration should be given to the following areas before making applications to form Guernsey companies or before instructing a local agent to incorporate a company in another jurisdiction: a) Due diligence arrangements which have identified and verified the ultimate beneficial ownership of the proposed company in accordance with the requirements of the Regulations and the Handbook. This means that, where the proposed company is held within a complex corporate structure, a licensee understands and has verified the true/economic beneficial owner(s) in line with these requirements. b) The proposed name of the company. Licensees should be aware of legal restrictions (for example, those in section 49 of the The Financial Services Business (Enforcement Powers)(Bailiwick of Guernsey) Law, 2020 or section 2(1) of the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law

3. Licensees should also consider guidance issued by the Guernsey Registry and by the companies registry, or equivalent, of any other jurisdiction in which the licensee applies to form companies. c) The proposed activities of the company. Licensees should identify whether the activities would be legal in the country within which they will be carried out and whether these activities require any licensing or other authorisation including, but not limited to, licensing, authorisation or registration to conduct financial services activities in the Bailiwick of Guernsey or elsewhere. d) High risk relationships. Licensees should be alert to situations where the parties or the activities would be deemed to be high risk. This should include consideration of whether there are any high risk indicators as set out in Regulation 5 and the Handbook. Examples include where the beneficial owner would be considered to be politically exposed: where the company is part of a complex structure; where the company is involved in services that amount to financial services businesses required to register in accordance with the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 or facilitate the carrying on of financial services business; and where the proposed activities would be regarded as sensitive. The Regulations and Handbook require licensees to carry out enhanced levels of due diligence and ongoing monitoring in cases assessed as high risk. e) Reputation risk. In the light of the above factors, the level of risk which the formation of the company would present to the reputation of the Bailiwick of Guernsey should be considered. The Fiduciaries Law requires the Commission to be satisfied that a licensed fiduciary’s business will be carried on in a manner which will not tend to bring the Bailiwick into disrepute as an international finance centre. The Commission therefore expects fiduciary licensees to use available information to identify cases which may damage the Bailiwick’s reputation, and to handle such cases responsibly, and may take regulatory action if licensees fail to do this. Examples of cases which may present reputational risk include those involving companies: i. trading in arms, supplying technology or parts connected with defence or providing military security services; and ii. carrying on financial services business in another jurisdiction, particularly one whose regulatory regime is not equivalent to that in the Bailiwick, or acting as a holding company of such a business.

4. Record-keeping All licensees, including those licensees who retain no ongoing relationship with the companies they form, are expected to comply with the record keeping requirements of Regulation 14 of the Regulations and Rule 2.6 of the Fiduciary Rules and Guidance, 2021.

5. Competence The effect of Schedule 1 to the Fiduciaries Law is that the Commission must be satisfied, both when granting a licence and on a continuing basis, that licensees are fit and proper

persons to hold a fiduciary licence. This encompasses a competence requirement in paragraph 2(2) which requires the Commission to have regard to the competence and knowledge and understanding of obligations undertaken, of both the licensee and its directors and managers as individuals. Compliance with the company law of any jurisdiction under whose legislation a fiduciary licensee forms or administers companies is therefore a regulatory issue and the Commission expects fiduciary licensees to understand the company law provisions which are relevant to their activities. Specifically, licensees should be aware of paragraph 2(2)(g) of Schedule 1 to the Fiduciaries Law, which sets out the minimum criteria for licensing. This requires the Commission to have regard to: “[a licensee’s/person’s] record of compliance with the provisions of the Companies (Guernsey) Law, 2008 in acting as a corporate services provider or a resident agent within the meaning of that Law.” The Commission will consider legal or regulatory action should the requirements of the Regulations or the Handbook be breached. The Commission will also consider regulatory action should a licensee fail to meet the minimum criteria for licensing set out in Schedule 1 to the Fiduciaries Law. Guernsey Financial Services Commission