Banking Industry Overview

The banking sector in the Channel Islands comprises traditional high street banking services provided for the local community and international banking activity which serves international customer base and the wider finance sector. Most major international banking groups are represented in one or both of the islands.

Historically, the Channel Islands attracted banks, originally UK merchant banks, as a result of the placing of large volumes of sterling deposits. These derived from UK expatriate earnings, offshore trusts and companies and wealthy UK individuals who were prevented from moving their funds outside the sterling area by exchange control regulations. Since then many of the reasons which gave rise to those substantial sterling deposits have changed with the removal of UK exchange controls and alterations in UK tax legislation on expatriate earnings.

Deposit holding and international lending remain important conventional functions of banks in the islands. However, fee earning services such as investment management, fund administration and custody, company formations and trustee/executor services have now grown in importance. This business is attracted to the islands because of their political stability in comparison with other offshore centres. The banks find these services attractive as income derived from fees is not related to banking assets and therefore does not affect their capital adequacy requirements to the same extent as traditional balance sheet activities. In addition some assets of fiduciary clients may also be on deposit with the bank thereby contributing further to banking profitability. In recent years the favourable tax environment has been used for increasingly sophisticated financial engineering products as well as bond issues and employee share option plans.

The finance sector is regulated and supervised by the Guernsey Financial Services Commission and the Jersey Financial Services Commission. Both Guernsey and Jersey have modern banking legislation based on the UK model.

KPMG is one of the the leading bank auditors in the Channel Islands being the statutory auditor of over a third of the banks in each island. In addition we provide tax and regulatory services to banking clients in both islands.