posted 10 Aug 2007 in Volume 10 Issue 3

Country report: Jersey finance industry: keeping ahead of the competition

By Geoff Cook, chief executive, Jersey Finance

One of the features of the offshore finance industry in recent times has been the growing importance for jurisdictions to demonstrate their ability to innovate, without neglecting either high regulatory standards or their service capabilities.

The most successful international finance centres have been able to diversify into more specialist areas and have shown they have the appropriate depth of infrastructure of leading-edge providers in banking, accounting, investment and legal services – frequently working closely together to meet the demands of the marketplace.

In Jersey the evidence to date is that the island’s finance industry is meeting these challenges successfully. Indeed, the flexibility of the regulatory regime, the widening scope of legislation and the growing specialist skills prevalent are encouraging increasing numbers of financial institutions, advisers and their high-net-worth clients to look at the island from a different perspective.

Advisers that traditionally might have turned to Jersey for a specific type of service have discovered that the island has adapted and evolved in order to provide a diverse range of bespoke financial services that suit the requirements of multi-national organisations and other major corporate clients, as well as the increasing number of high-net-worth individuals, both from Western markets and the emerging regions. The result is that Jersey, through its structures, legal framework and skilled workforce, is becoming a leading partner in many global transactions and in the provision of bespoke, often sophisticated investment vehicles.

Partnership

The importance of the partnership between jurisdictions such as Jersey and the City of London and other major financial centres was emphasised in London recently when the Lord Mayor of London spoke at Jersey Finance’s annual London conference and praised the innovation of people working in Jersey’s finance industry. Lord Mayor John Stuttard has invited representatives from Jersey to join him on his world tour promoting the City of London later this year.

The introduction of Protected Cell Company (PCC) and Incorporated Cell Company (ICC) legislation in 2006 was an illustration of that innovation. It has given firms greater choice when structuring investment funds and in other areas where ring fencing of assets and liabilities is important. The ICC vehicle is also attractive to the insurance industry and it has given the island’s burgeoning captive-insurance sector a useful shot in the arm.

Cell-company legislation is only one example that signals the increasing diversity and specialisation provided by the island’s finance professionals.

In the property market the arrival of REITs in the UK has signalled a new area of opportunity for Jersey in the global property market. Lawyers believe that Jersey-incorporated REITs may have significant advantages over a UK incorporation, not least in offering greater flexibility to investors. Jersey REITs may also be structured as ICCs, adding further to the flexibility of the structure if located in Jersey. It is further anticipated that the Channel Islands Stock Exchange will be an ideal exchange in which to list newly-formed REITs when they come to market.

First choice

The funds sector generally has been a major source of new business for Jersey in recent years, and the island is determined to continue its investment in this sector with the aim of becoming the first-choice jurisdiction for EU-based funds managers seeking an offshore domicile for their funds across all asset classes and a credible alternative for specialist fund administration services. The developments during 2007 so far have been swift.

The Jersey Financial Services Commission (JFSC) launched the Listed Fund Guide in January; a lighter-touch, faster-track regulatory regime for listed closed-ended funds to complement the existing and successful Expert Fund Guide.

The island also negotiated to be one of the shortlisted jurisdictions whose regulations are considered sufficient to enable Jersey funds to be listed on the Euronext Exchange.

These and other developments in the funds sector provide fund promoters with more choice and greater flexibility when deciding, either on the choice of domicile or the type of structure they require.

For example, the island is well positioned to support foreign investors from the emerging markets investing in Europe, with the result that firms in the island are called upon to establish appropriate vehicles or structures to facilitate the flow of funds. Jersey holding companies are frequently the chosen structure for investors prior to listing on the Alternative Investment Market (AIM) in London.

Trust enhancements

Such is the competitive nature of the trust industry that, even though Jersey introduced a range of enhancements to its legislation in 2006, further measures are planned for later in 2007 following discussions between industry representatives, the regulator and the authorities. In these latest enhancements, the proposal is to clarify the position of former trustees when claims are made against them. The industry is also looking at the definition of a ‘charity’ or ‘charitable purpose’ under Jersey law, and possible amendments to the Article of the Law relating to foreign claims and judgments.

These developments are underway against a backdrop of business growth in the island that continues to reach new records. The latest statistics provided on Jersey’s finance industry show that the Net Asset Value of funds under administration, and the total level of bank deposits, are both approaching the £200bn milestone as at 31 March 2007. Compared to the previous quarter, bank deposits have increased by 4.7 per cent overall to £198.6bn: the highest recorded figure to date. The Net Asset Value of funds under administration increased by 8.6 per cent to £194.5bn.

Worldwide wealth

The future for the leading financial jurisdictions such as Jersey is encouraging when you consider the global picture.

Internationally, recent statistics published by Merrill Lynch/Cap Gemini, show that worldwide wealth is accelerating. At the end of 2005 there were 8.7 million individuals with more than $1m of liquid assets, 6.6 per cent up on the previous year. More recent figures reaffirm that trend with an eight per cent increase in dollar millionaires year-on-year. The proportion of such millionaires in the emerging markets, such as Asia and the Gulf show double-digit growth.

Another major driver for global change is demographics. There are increasing numbers retiring at 65, and with improved healthcare and life expectancy, these potential customers can look forward to retirement lasting 20 to 30 years. There will be growing numbers of wealthy three-generation families, which offers potential for those professionals in Jersey involved in family office work, banking and trust business.

When you consider the growing participation of private-equity firms and their development as a major conduit for business worldwide; the profitability of big business and the bullish trend in some of the equity markets; the bonuses paid at City institutions; and the growing economic power of emerging regions such as China, India and the Gulf, it is no surprise that more and more people, both entrepreneurs and other individual professionals, are becoming wealthier. Locations such as Jersey, which have long experience and knowledgeable insights in handling international investors’ investment and estate-planning needs, can remain attractive locations for such business provided they remain competitive.

Strength in depth

A further strength of Jersey compared to some other jurisdictions is the extraordinary number of high-quality banking organisations that not only have a presence in the island, but which employ substantial numbers to handle the investment needs of international investors. A recent review by Tier 1 capital¹ confirmed that nearly half of the top-25 global banks have an operational presence in the island. Alongside this heavyweight banking presence, Jersey has considerable strength in depth in the range of legal firms that are available for specialist international finance work.

Many major Jersey firms now have a presence in other jurisdictions through expansion and mergers and acquisitions and, equally, we have seen the arrival of leading law firms from other jurisdictions now with offices in Jersey. This trend can only strengthen the legal capabilities of the island for global business.

Underpinning these developments is Jersey‘s political and economic stability, which remain important attributes that should never be underestimated. The island also has a determination to uphold high standards of regulation and a willingness to co-operate with the international authorities in fighting money laundering and fiscal crime.

Innovation

There is no doubt that business is buoyant and we are seeing an increasingly confident industry, a supportive government and a respected regulator, with a good understanding of the need for balance. We cannot afford to be complacent, however, and there is a desire from Jersey industry to continue to push for further innovation so that we can effectively meet the needs of legal professionals and other advisers globally. Working together, the island will strive to remain the premier offshore jurisdiction in Europe for international financial services.

References

1. The Banker magazine, 2006