Jurisdictional Differentiation in a Turbulent Environment

The past twelve months have continued to provide challenges to international finance centres (IFCs), whether it has been contending with leaks of private data, or navigating shifting international regulatory standards – alongside of course the more general global market volatility following Brexit and various election results around the world. Yet all this is part of the changing geopolitical landscape in which IFCs must adapt.

The expectation among critics has been that this global state of flux, and the revelations of the Panama Papers, would lead to faltering growth, yet for Jersey, this has not been the case. The net asset value of regulated funds under administration reached a record £260bn in March 2017, with the Island attracting the largest fund ever launched and the largest ever buyout fund raised by a European fund manager.

There were also significant real estate transactions structured through Jersey, including London’s iconic ‘Cheesegrater’ building, the second-largest single asset sale in the city's history. Underlying bank deposits institutions have remained stable, and corporate activity is strong – almost 100 Jersey companies, with a combined market capitalisation of £240bn, are listed on global exchanges.

This growth is down to Jersey providing the stability, certainty and adaptability that private and institutional investors are seeking. Jersey has sought to differentiate itself by demonstrating its commitment to the highest standards of regulation and cooperation, and positioning itself as an innovative jurisdiction and a safe harbour.

Reputational Advantage

Understanding complex global wealth trends is vital for IFCs. Research by Jersey Finance, undertaken by Capital Economics in 2016, showed that global protectionist trade restrictive measures rose from almost 400 in 2010 to just under 1,600 in 2016 (Jersey’s Value to Britain and Jersey’s Value to Europe). The same research showed that global cross-border lending and borrowing by banks rose from US$1 trillion in 1980 to US$25 trillion in 2015.

This has shown the growing market for efficient cross-border investment and robust private and family wealth structuring - precisely the services in which Jersey specialises.

The UK and EU remain important and unaffected by Brexit. Jersey’s constitutional relationship with the UK is separate, whilst ‘third-country’ access into EU Member States for financial services is retained thanks to existing directly negotiated agreements. However, Jersey is not reliant on those markets. The ‘Value To…’ reports concluded that, of the £1.3 trillion of wealth held in Jersey structures and vehicles, around two-fifths originated from investors outside of Europe.

It’s a reflection of the success that Jersey has had in last decade in developing new markets. Ten years ago, Jersey foresaw the demographic slowdown and public finance strains in Europe and embarked on an outward-looking journey, pushing out into the growth markets by establishing offices and representation in the Far East, Middle East, India, North America, and Africa. Today, many markets are outside the UK time zone, particularly where there is unrest and investors are looking to protect their assets and ensure secure multi-jurisdictional succession planning.

This global market view has been underlined in white papers published by Jersey Finance in conjunction with Hubbis over the past twelve months, exploring wealth management trends in Greater China and  in member countries of the Gulf Cooperation Council(GCC). They showed a demand for international wealth structuring, asset protection and succession planning in those markets, and a growing desire to engage with quality, experienced IFCs like Jersey to support their global aspirations.

Pragmatic Balance

The white papers  have however highlighted those markets’ low levels of awareness of international reporting and compliance requirements. In a world where increasing governance and reporting obligations are creating complex issues for international investors, this is an area of opportunity for IFCs, which can act as centres of compliance and data security excellence. In the case of both the GCC and China, Jersey is emphasising the support that it can provide.

Jersey has built up a huge amount of experience in international cooperation. Anti-tax evasion legislation, for example, has been in place since 1999, and there is a broad network of information exchange agreements, and the Island has committed to the OECD’s BEPS project.

In addition, Jersey was an early adopter of the Common Reporting Standard (CRS) and began automatically exchanging tax information with the UK in 2016. Jersey’s corporate service providers already have the mechanisms and experience to ensure the smooth exchange of information when it comes into play for all countries signed up to the CRS this September.

Beneficial Ownership Register

Whilst some jurisdictions ( both offshore and onshore)  have only recently begun to introduce registers of information on the ultimate beneficial ownership of each company, Jersey’s central register has been collecting information on the ultimate beneficial owners of each company since 1989. Unlike registers in other jurisdictions, the identity of beneficial owners is actively verified at the time of first registration, and is updated efficiently. Since June 2017, it has been possible to supply that information to law enforcement authorities within an hour if urgent, and within 24 hours if non-urgent, in line with international standards. The information is, however, only available to legitimate authorities.

Only last year, Jersey’s model for information collection and storage was praised by the EU’s MONEYVAL group. Jersey has sought to strike a pragmatic balance between transparency and confidentiality and, whilst there continue to be calls for public registers from certain quarters, Jersey has been keen to engage in debates to uphold the merits of compliant confidentiality. There has still been no credible argument made for public registers, and it is significant that the UK is one of just a handful of jurisdictions worldwide to have committed to a public register model, with several major economies showing little interest in adopting it.

There are questions over the effectiveness of public registries in fighting financial crime. In the UK, companies submit their own information on beneficial ownership without there being significant systems for verifying that it is correct. There are also significant privacy and human rights issues, something that has been picked up in European courts over the past year.

The UK Government’s Criminal Finances Act, adopted in April this year, is the latest piece of legislation designed to help tackle financial crime. It puts in place a programme for the UK Government to determine over the next two years whether its Crown Dependencies and Overseas Territories meet international standards in relation to capturing and sharing beneficial ownership information.

For Jersey, this programme is welcome. It is an opportunity to engage with the UK Government, and to challenge the notion that public registers are the most effective means of combating financial crime, and assert its leading role by advancing sensible debate on this important area.

Innovation

Just as global reach and solid regulation are crucial for IFCs in today’s climate, so too is innovation. Jersey is not complacent about its positioning. Based on an appreciation of trends in the global private client space, for instance, proposed amendments to the 1984 Trusts (Jersey) Law are being progressed. The amendments relate to the provision of information to beneficiaries, the reservation of powers by a settlor, and the extension of indemnity provisions. It is only the seventh time that law has been amended in its 30-year history, reflecting the strength of the law as a framework.

Jersey is also reacting to the global trend for socially responsible wealth management strategies by introducing its Charities Law. The law includes the appointment of a Charities Commissioner later this year, and will create a robust framework to support global philanthropic enterprises. As philanthropy becomes an increasingly important element of holistic wealth management strategies, Jersey is seeking to differentiate itself from other IFCs by offering a regulatory regime that enables philanthropic endeavour to take place.

Jersey continues to break new ground too with its programme of research. Over the past five years, more than ten reports have helped shape and direct the industry, and further research is planned over the coming year on key markets, as well as products in the funds and pensions space. No other jurisdiction is as committed as Jersey to differentiating itself by delivering new insights to the international investment community.

In an environment where there is increasing scrutiny of international finance and its role, it is important for IFCs to be able to explain what they do, and to demonstrate the value that is added. In Jersey, we are able to provide evidence through independent reports and the concrete increase in business flows that we are seeing. That sort of positive jurisdictional differentiation is setting us apart in a turbulent world.

Geoff Cook
Geoff Cook is an experienced Chair and non-executive director. He has led significant business enterprises for more than three decades and helped major international groups to grow and prosper. As a Chartered Director, Geoff has deep knowledge of corporate governance, global regulation, and risk management. He has authored numerous articles and papers on cross border investment and the role of International Finance Centres (IFCs) in the global financial system. Geoff is an Advisor and non-executive director to a select number of Family Office, Private Capital, and Advisory boards. He was appointed Chair of Mourant Regulatory Consulting in 2021 and Chair of Quilter Cheviot International in 2019 to lead and develop the firm's international strategy. Geoff is also Chair of Apex Financial Services (Jersey) Ltd, a leading fiduciary and is presently Chair of the Society of Trustee and Estate Practitioners (STEP) Global Public Policy Committee. He was formerly the CEO of Jersey Finance and Head of Wealth Management HSBC with extensive international cross border experience across various sectors.