Regulation

Jersey: Flight to Quality in the New World of Wealth Management


By Geoff Cook, CEO, Jersey Finance (01/06/2013)

Challenging market conditions have prompted a noteworthy flight to quality, which has benefited Jersey’s wealth management industry. That was the key message to come out of Jersey Finance’s London Private Client Conference held at the British Museum in mid-May, of which IFC Review was a media partner.

 

With economic and political uncertainty continuing to fuel public debate the event provided more than 200 wealth management professionals with a timely update on Jersey’s legislative plans for its trust industry and the increasing divergence of the wealth management industry into new markets and regions.

 

As wealth management professionals increasingly look to jurisdictions that can clearly demonstrate high levels of stability, substance and expertise, the event sought to shed light on some of the complex issues currently at the centre of debate - including transparency, information exchange and tax planning.

 

In the wake of the financial crisis and the calls for more stringent regulation, Jersey has actually witnessed a flight to quality by investors and advisers. While the wealth management industry faces many challenges in the months ahead, there are significant opportunities, particularly in the global markets and through legislative innovation.

 

Expertise

 

Responding innovatively to often complex issues and trends in order to remain competitive is vitally important, and Jersey has a good track record in this area.

 

For instance, Jersey’s trust law, which has been used as the basis for the Hague Convention on trusts and as a model in a number of other jurisdictions, is frequently subject to enhancements.

 

‘Amendment No.5’ was implemented in 2012 to bring clarity and certainty to a number of areas and more changes are planned this year.

 

The introduction of Foundations in 2009 has been a major benefit, too. Over 200 Foundations have now been registered in Jersey, being employed for a range of uses and proving particularly popular in the Middle East, Russia and Asia.

 

A specific area where Jersey is currently seeing real potential is in philanthropy, which has become an integral part of the wealth management strategies of individuals and families – as was highlighted at the conference by STEP Worldwide CEO David Harvey.

 

The trust law in Jersey allows for a range of structures to suit specific philanthropic objectives – the ‘charitable trust’ is one particularly attractive option, while around one third of Jersey’s registered Foundations are being used for philanthropic purposes.

 

International

 

Equally as important as regulatory and service innovation is Jersey’s drive to form positive relationships with the key international growth markets. Whilst London and the key cities of ‘mature Europe’ remain primary markets for Jersey, the potential for new business from the fast growing economies is significant.

 

Remaining alert to the trends that are driving shifts in wealth distribution is vital. For instance, recent statistics reinforce the trend that wealth continues to migrate east. With the global population of High Net Worth Individuals (HNWI) increasing to 11 million, the Asia-Pacific region has, for the first time, overtaken North America to become the largest home to HNWIs (3.37 million) (Capgemini World Wealth Report 2012).

 

Consequently, Jersey is maintaining a firm focus on the Far East. In China, Jersey is promoting its trust and company structures to enable Chinese investors to access Western markets. In India, a burgeoning middle class is giving Jersey an opportunity to support the domestic Indian banking sector with its wealth management expertise. Connecting with the growing global Non-Resident Indian community also remains on Jersey’s radar.

 

Meanwhile, Jersey is targeting accelerated business flows in the Middle East and Russia. The Middle East is still feeling the after-shocks of the ‘Arab Spring’, while Russia remains cautious about a persistently volatile Europe. For both regions, there is growing interest in Jersey as a safe, politically neutral and well regulated finance centre. High projected growth rates in Africa are also making that an increasingly interesting target market for Jersey.

 

Transparency

 

Alongside these developments, Jersey continues to play its part in the rapidly developing global drive to stamp out tax evasion and fraud.

 

Widespread austerity has had the perhaps inevitable consequence of renewing the focus on tax receipts, tax planning and transparency – particularly surrounding the EU and G8 summits this summer. The resulting negative emotion, whipped up by the media and politicians, has generated a lot of heat but, in reality, not too much light.

 

The Jersey conference tackled the tax avoidance debate head on in a panel session in which Monica Bhatia, Head of Global Forum on Transparency and Exchange of Information for Tax Purposes at the OECD, participated.

 

As well as discussing whether it is possible to effectively differentiate between routine tax planning and aggressive tax avoidance, a key issue to emerge from the panel session was data security. Several panellists urged government bodies not to lose sight of the importance of the individual’s right to privacy in the drive for increasing information exchange, nor the threat posed by criminal gangs in obtaining sensitive information, with increasing amounts of confidential data being exchanged.

 

This does not fly in the face of fighting financial crime and tax evasion, an area in which Jersey has an excellent track record. In fact, Jersey has been fighting tax evasion vigorously since it introduced legislation in the late 90’s making it a crime. Jersey has no banking secrecy laws and regulations are in place so that entities, including trusts, are fully accessible under the terms of Tax Information Exchange Agreements (TIEAs). Trusts are also subject to ongoing rigorous supervision by Jersey’s regulator, while trust and company service providers have been regulated in Jersey for many years.

 

Jersey remains one of the world’s best regulated international finance centres, a position that has been acknowledged by independent assessments from some of the world’s leading bodies including the World Bank, the OECD and the IMF. Overall, the standards Jersey demonstrates exceed most if not all G8, G20, OECD and EU countries.

 

In addition, at the conference Monica Bhatia described Jersey as playing an important role in the Global Forum as a member of its Steering Group in helping to shape global standards.

 

As the world’s leading offshore centre (Global Financial Centres Index, March 2013) Jersey is in a very strong position indeed and, as this flight to quality continues to manifest itself, continues to grow in size and stature as a world class wealth management centre.