The Channel Islands (“the Islands”) comprise the Bailiwicks of Guernsey and Jersey. They are autonomous British Crown Dependencies with a direct allegiance to the British Crown which goes back over 800 years. They are not part of the UK, are not represented in the UK (Westminster) Parliament and receive no financial subsidy from the UK government. They have their own parliaments and legal systems, and full fiscal autonomy.
From 1973 to 2020 the formal relationship between the Islands and the EU was governed by Protocol 3 of the UK’s Accession Treaty. The Islands were part of the EU Customs Union and were essentially within the Single Market for the purposes of trade in goods. In all other respects, they were “third countries”. Pursuing a “good neighbour” policy, the Islands built up a relationship with the EU as third countries, for instance on taxation, financial services, anti-money laundering and data protection.
Due to the UK’s decision to leave the EU, the Islands’ formal relationship with the EU under Protocol 3 came to an end on 31 December 2020.
The two Bailiwicks each agreed a new Customs Arrangement with the UK in 2018 and secured extension of the UK’s membership of the World Trade Organisation (“WTO”), which means that the Islands can also benefit from the lower trade barriers offered to WTO members, including tariffs and import quotas. The Customs Arrangement and the WTO extension came into effect on 1 January 2021.
On 24 December 2020 negotiations concluded between the UK and the EU on a Trade & Cooperation Agreement (TCA). It applies provisionally from1 January 2021. The TCA applies to the Islands to a more limited extent than to the UK, covering the relationship between the Islands and the EU in relation to:
- trade in goods, including customs tariff and procedures, as well as recognition of certain regulatory standards in relation to agricultural and manufactured goods; and
- access to fisheries resources in the territorial waters of each Bailiwick.
Further details are contained in the Proposition and Policy Letter from the Guernsey Policy and Resources Committee and the recommendation from the Jersey Council of Ministers.
On 27 December the 4 parliaments of the Islands – the Jersey States Assembly, the Guernsey States of Deliberation, the States of Alderney and the Sark Chief Pleas – approved the inclusion of the Islands in the TCA on the above basis, subject to giving further consideration to the full and final legal text within the 90-day confirmatory period provided for in the agreement.
As noted, for most purposes, including taxation, financial services, anti-money laundering and data protection, the Islands have always been third countries to the EU. Extension of the TCA does not affect the Islands’ cooperation with the EU in these areas and the Islands have made clear their commitment to remaining good neighbours of the EU.
The protection of personal data and ensuring that when such data needs to be transferred to another jurisdiction it is done efficiently and securely, is vital for public bodies and for industry in Guernsey and Jersey. Guernsey and Jersey’ domestic data protection legislation is based on EU law. Guernsey and Jersey are among a small group of third country jurisdictions that are the subject of a European Commission “adequacy decision”, meaning that they have been officially assessed as meeting EU data protection standards. The Channel Islands have implemented domestic legislation which is essentially equivalent to the new EU General Data Protection Regulation (GDPR) and the related EU Directive on data exchange between law enforcement authorities (LED). Guernsey and Jersey’s legislation came into effect on 25 May 2018, the same date as the GDPR and the LED.
Financial services firms are major employers in the islands, with over a quarter of the workforce (19,000 jobs) employed in the sector. The Channel Islands are treated as third countries for the purposes of EU financial services legislation. As major well-regulated financial centres, both Guernsey and Jersey are significant net providers of liquidity and investment funds to the EU economy. The Channel Islands have a robust and internationally respected system of financial regulation, including with respect to tackling money laundering and terrorist financing. Their own independent regulators enjoy excellent regulatory cooperation with their EU counterparts, including with the European Supervisory Authorities. Since May 2016 Guernsey and Jersey have been within the geographic scope of the credit transfer and direct debit schemes of the Single Euro Payments Area (SEPA).
Further details of the financial services industry in the Islands and of the relationship with the EU can be found in the separate note “Channel Islands-EU – Financial Services.
As specialist finance centres, Guernsey and Jersey recognise the important role they must play in tackling financial and economic crime, particularly as regards AML/CFT. Both have had tax crimes as a predicate offence for AML purposes for more than a decade.
Further details of the regulatory cooperation between the Channel Islands and the EU on financial crime can be found in the separate note “The Channel Islands and the EU: tackling financial crime“.
Guernsey and Jersey have the same need as EU Member States to protect their public finances and therefore have common cause with the EU in tackling tax evasion, fraud and aggressive tax avoidance. The Channel Islands have shown themselves by their actions to be reliable, active and cooperative partners of the EU and of the wider international community. This has been recognised by EU Finance Ministers (ECOFIN) who, on 12 March 2019, confirmed that Guernsey and Jersey were cooperative jurisdictions, following a rigorous assessment process coordinated by the EU’s Code of Conduct Group on Business Taxation. This assessment was re-confirmed by ECOFIN in February and October 2020.
Further details of the cooperation between the Channel Islands and the EU on tax can be found in the separate note “The Channel Islands and the European Union – tax cooperation“.