A Flight to Quality: Setting the Standards for IFCs

By Geoff Cook, CEO, Jersey Finance (01/10/2016)


The brighter global spotlight that has recently been shone on international finance centres (IFCs) may have caused some controversy, but it has also created opportunities for leading jurisdictions such as Jersey.


As demands have grown for greater transparency and international cooperation, and the role of IFCs in financial crime has come under greater scrutiny, Jersey has used the spotlight as an opportunity to communicate exactly what differentiates us from less well-regulated jurisdictions.


With the ability to demonstrate high standards for regulatory oversight, professional excellence and political and social stability, Jersey has used the global spotlight as an opportunity to explain its positive role in the global economy.


Where cross-border business has been misportrayed as inherently ‘toxic’ or secret, Jersey has sought to show that the high-quality, high-value, cross-border business that it seeks to attract in fact adds value. It has also been an opportunity to explain that not all IFCs are the same and that some, like Jersey, actually exceed the regulatory standards of many larger onshore countries.


Beneficial Ownership


In the wake of the Panama Papers, the issue of beneficial ownership – knowing the individual who is ultimately behind a company – has become a key issue. The UK Government reached agreements with all Overseas Territories and Crown Dependencies to exchange information on beneficial ownership, and was pushing for all the jurisdictions to establish a registry. Jersey already had a registry; the agreement with the UK merely set tighter deadlines for the exchange of beneficial ownership information with law enforcement and tax authorities. 


Jersey had already adopted a leading stance in this area, having had an effective central register of beneficial ownership, and having been collecting and exchanging information on beneficial ownership since 1989. The beneficial ownership information held in Jersey’s Companies Registry is available to all law enforcement and tax authorities. The new agreement will simply mean that Jersey will respond to requests from the UK’s authorities much faster. Urgent cases will now be dealt with in one hour, while routine requests will take 24 hours, putting Jersey at the very cutting edge of both beneficial ownership information capture and information exchange.


The information contained within Jersey’s register is subject to strict validation by regulated professionals, meaning that the ultimate owners of every single Jersey-registered company is known and monitored. Information is provided by intermediaries who are regulated by the Jersey Financial Services Commission. They are required to provide this information or face penalties, highlighting the quality of information being captured through Jersey’s model, an important distinction from other jurisdictions.


With the regulator having access to the names of ultimate owners of companies, together with regulated intermediaries holding comprehensive beneficial ownership information relating to trusts, and a comprehensive network of information exchange platforms, it is simply not possible to set up a company in Jersey without validated information on the beneficial owners.


This approach, which is endorsed by the OECD and World Bank, provides an effective way of achieving the ultimate objective of ensuring that Jersey is not used for corruption. The hope now is that the central registries introduced by other jurisdictions will be as effective as Jersey’s.


It continues to be the view of Jersey’s finance industry that this model is more robust and effective in capturing accurate information on the beneficial owner of every company than the UK’s public registry, introduced in summer 2016.


Under the UK’s plans, companies must submit their own information on beneficial ownership, and it is unclear what checks and balances will be in place to ensure that the information provided is accurate and up to date.


In reality, criminals set on misusing companies for financial crime would be unlikely to comply with self-reporting requirements. Just because a register is public does not necessarily enable it to meet its overall objective of cracking down on financial crime. 


This view was confirmed by independent academic research which was presented at Jersey Finance’s Private Wealth Conference in London this year. As Professor Jason Sharman explained to delegates, his paper Solving the Beneficial Ownership Conundrum: Central Registries and Licenced Intermediaries and the research underlying it, demonstrated how ineffective central public registries could be. It also demonstrated the effectiveness of Jersey’s structure, with a central registry and regulated intermediaries providing a robust system.


While the debate over the most effective method of stopping tax evasion, political corruption and money laundering continues, one thing is clear: there is a global responsibility to tackle financial crime and Jersey will continue to play a leading role in doing so. 




While Jersey has taken a leading stance on beneficial ownership for more than 20 years, and that other IFCs are committed to similarly robust models of information exchange and transparency, there remains some international criticism of the beneficial role that IFCs have in promoting high quality international investment.


Cross-border financial flows continue to come under real scrutiny and the onus is now on IFCs to focus their efforts on explaining clearly and honestly what it is they do and why individuals and institutions use them. 


That is why Jersey Finance has taken the innovative step of adding to the debate constructively through independent academic research. Publications have included Jersey’s Value to Britain (2013), Moving Money (2013), Jersey’s Value to Africa (2014), Jersey’s Contribution to FDI (2015) and Professor Sharman’s paper this year, with further reports planned for the coming months.


These reports show that international investment is not driven by tax avoidance, indeed, Jersey is a tax-neutral jurisdiction. Jersey’s strength is in ensuring that international investors can efficiently pool their assets to invest into diverse assets around the world, whether that might be infrastructure, hospitals, educational institutions or start-up businesses.


Equally, Jersey is not used for secrecy or hiding money, but rather for its stability and reliability. Individuals, families and institutions, often in unstable or politically corrupt countries, rely on Jersey as an independent jurisdiction that can offer a strong rule of law, stability and a high degree of professional expertise to ensure their succession plans can be carried out without the risk of being targeted by criminals or corrupt officials in their home state. A degree of privacy is a basic human right and compliant confidentiality is an important concept.


Using an IFC like Jersey is not only an entirely rational approach, it is also a means of making sure capital can be put to work quickly, efficiently and robustly. The global economy would be much worse off without them, which is why Jersey’s biggest clients include large scale institutional pension funds and sovereign wealth funds.


Positive Difference


As well as through its thought leadership programme, Jersey is also showing innovation in other ways, notably in the increasingly important area of socially-responsible wealth management.


According to the 2015 World Wealth Report (RBCWM/Cap Gemini), 92 per cent of high net worth individuals (HNWI) globally now feel that the social impact that they have is important, underlining the extent to which private clients, family offices and their advisers are focusing on socially-responsible wealth management.


There is a growing trend for succession planning to include philanthropy. Instead of simply passing on the wealth, families and their advisors are preparing younger generations to become custodians of family wealth by asking them to consider what impact they want that wealth to have on the world. So significant is this trend, it is anticipated that social responsibility within wealth management will eventually become embedded as a core component of private wealth strategies. 


The increasingly global nature of this trend plays to the strengths of IFCs. As a jurisdiction that provides innovative cross-border financial services, Jersey has become an ideal centre through which to establish internationally-dynamic philanthropic structures. This is largely because of the same strengths and skills that have helped Jersey earn a strong reputation in facilitating global capital flows: security, expertise, tax neutrality and experience.


Not only has Jersey’s finance industry sought to adopt a leading position in tackling financial crime but, through evidence-based research and a commitment to innovation in areas like socially-responsible wealth management, the island has also provided a compelling narrative to highlight the positive role it plays on the global stage