Accelerated Change In A New Era For IFCs

Over that time, the industry has changed significantly as investor demands, capital flows, regulatory frameworks, social norms, and technology have all shaped what it means to be an international finance centre.

What has stayed constant over that time, though, is Jersey’s ability as a jurisdiction to demonstrate an entrepreneurial spirit, able to innovate and adapt to support high-quality financial flows. Jersey’s purpose – to help facilitate high-quality international investment so that capital can be put to work where it is needed most – remains as true today as it did 60 years ago.

Today, Jersey’s finance industry is truly global, with a footprint in all corners of the globe and Jersey firms supporting clients in increasingly diverse ways, from Islamic finance and philanthropy, to ESG investing and virtual currencies.

It's often said that IFCs, because of their nature as smaller jurisdictions, tend to be more agile and adaptable in the face of external forces – but this is not a given, and there are plenty of examples of jurisdictions that have attempted to carve out opportunities in the IFC space only to fall short for various reasons.

Maintaining Jersey’s reputation as a leading IFC has required extraordinary effort – more so today than ever before, given the exponential rise in regulatory initiatives and growing complexity of financial instruments and investor demands.

It’s why, more than a decade ago in the wake of the global financial crisis, Jersey had the foresight to set out a long-term vision for itself as an IFC, a vision that was forward-thinking and way ahead of other IFCs in setting out its stall in terms of digital adoption, its focus on regulatory excellence, its commitment to developing specialist expertise, and its desire to extend its global market outreach.

It was a vision that also brought the industry together with Jersey’s government and regulator to create a pro-business, collaborative, jurisdiction-wide approach. The fruit of that collaboration can be seen in the consistent rise and greater diversity in business flows Jersey has seen over the past decade as high-quality capital has sought a high-quality platform to support it.

Today, for instance, Jersey’s finance industry manages assets totaling more than £1.3trn for clients stretching from the Americas to Asia, with more than 50 per cent of new business booked through Jersey originating from time-zones beyond Europe.

It has succeeded in attracting this business because of the foresight it had to put the right framework in place, so that today Jersey is regarded as a leading IFC in terms of governance and regulatory excellence – global bodies including the OECD, World Bank and EU have all praised Jersey for its ability to demonstrate international standards and commitment to international cooperation.

The decision to invest in creating a truly digital-first infrastructure has also been pivotal in attracting institutional grade business – Jersey’s fibre broadband speeds are officially recognised as being the second fastest in the world, and this is often a critical element when it comes to jurisdictional selection. Investors know that in Jersey they have a robust, stable, reliable platform.

Ultimately, financial services remains a people, relationship-driven business too, and the focus Jersey has placed on the quality of its workforce has given it a capability to support global clients in an increasingly broad range of areas, from supporting family offices, expats and philanthropists to corporates and pension funds. Jersey, for instance, has the largest branch of STEP members globally.

This has all resulted in an impressive performance in 2020, despite challenging global conditions as investors have continued to put their faith in Jersey. Our private wealth sector has shown real diversification into new markets, including the family office sector and Islamic finance market, while on the investment funds front the value of fund assets serviced in Jersey has continued to grow, reaching new record levels in 2020 of some £360bn.

Ready To Adapt

If the experiences of 2020 have taught us anything, it’s that in this new era, staying on the front foot, ready to adapt, has never been more important.

The fact that Jersey has been on a journey of innovation for some years now has put it in a really good position compared to other centres, acknowledging that reputation is key in the modern landscape.

Jersey, for instance, has had a presumption towards economic substance for years, and being a first mover to codify it in law in early 2019 meant that investors knew what to expect from Jersey already. For other centres, there has been far more change in a very short space of time in order to meet necessary requirements set out by the EU and OECD, and that has the potential to really unsettle investors.

In terms of enhancing its product and service range Jersey has maintained a focus on innovation too – the Jersey Private Fund (JPF) is a case in point. Launched in 2017 to meet the specific needs of small numbers of sophisticated investors requiring a quick to market product, there have now been more than 350 JPFs established.

The Jersey Foundation, which marked its 10^th anniversary last year, is another example of a vehicle brought to market to fit a specific need. Today, the Jersey Foundation is recognised as a key tool in the philanthropic arena.

Innovation has continued in 2020 too, with amendments being made to Jersey’s Limited Partnership legislation to make it easier to migrate funds from other jurisdictions to Jersey, whilst further enhancements are anticipated shortly with a new Limited Liability Company product, designed to meet the needs of US fund managers in particular.

All of this was underway already but, of course, we don’t stand still. In fact, if anything, the experience of the pandemic this year has underlined just how important it is to remain agile in response to global market conditions.

Future Role

IFCs like Jersey have a really important role to play in terms of economic recovery, by drawing on their digital strengths as well as their expertise, global knowledge and experience. The need for impactful, secure investment flows will be more important than ever over the coming years. That makes IFCs like Jersey, that have decades of experience in doing just that, absolutely crucial.

However, they are going to have to work much quicker and harder than ever before to demonstrate this value, in a world that is likely to be more complex, faster moving and fluid than ever before.

According to McKinsey, the world has ‘vaulted forward’ five years in the space of just a few months this year in terms of digital adoption – and IFCs will need to work harder than ever now to maintain that trajectory. Investors are increasingly open to change;  in some cases they are demanding it and IFCs will need to adapt and innovate at increasing speed if they are to play a meaningful role in connecting investors and fulfilling their role as facilitators of global capital.

In particular, the fallout of the pandemic has underlined the importance of global connectivity, digital capability, and sustainability. These are areas  in which Jersey has already been on the front foot  for some time and that will come into further focus in the months ahead -   this could be a real differentiator.

Our commitment to developing relationships and working with partners in key international markets, for example, has helped us diversify as an industry and maintain a global footprint that is the envy of other IFCs.

This global connectivity is backed up by our commitment as a jurisdiction to digital innovation and our aspiration to be the easiest jurisdiction to do business with remotely in a digital world. We are continuing to develop fintech, wealthtech and regtech solutions to deliver on this ambition, made possible by the growing community of digital experts in the island and Jersey’s digital infrastructure. This year, Jersey Finance produced a whitepaper focused on lawtech, which highlighted the opportunities for Jersey’s legal sector to embrace digital innovation, and we will be following up on this in 2021.

We have also been working on a long-term sustainable finance strategy for Jersey this year, which will be expanded on next year and will clarify our ambitions in the sustainable finance space. The feeling is that this will really resonate with the needs of investors looking for purpose-driven jurisdictions that are in tune with the direction of travel.

There’s no doubt that the world has changed for good and we can expect in 2021 an acceleration in the rate of change, and it will be those IFCs that acknowledge and respond to this that will thrive. As the world comes to terms with the impact of the pandemic this year on economies and communities, Jersey stands ready, thanks to its global connectivity, focus on innovation and commitment to providing a stable platform, to play a positive role in economic recovery and beyond.

Joe Moynihan
With a career in financial services spanning four decades, Joe has a strong commitment to the future success of the industry in Jersey. Joe commenced his professional life in the banking sector, rising to the position of CEO of Jersey and the Isle of Man for a major bank, which included responsibilities for trusts and investments. In recent years, he expanded his focus as Director of Financial Services within the government of Jersey, where he worked closely with industry and regulator to ensure the island’s position as a leading international finance centre. Before joining Jersey Finance in February 2019, Joe was working to establish high-reputation regulatory frameworks and business models for IFCs in the Middle East and Africa.