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JERSEY FIRST FOR FINANCE -
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Fifth Edition 2013-2014
A truly integrated wealth management approach Banking
Fifth Edition 2013-2014
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RBC Wealth Management prides itself on its ability to provide global integrated wealth management solutions to a diverse range of high net worth clients. Our approach, supported by the strength and stability of being one of the world’s top 10 wealth managers*, offers you a dedicated service and the security of working with a safe and sustainable financial organisation. Whether you are a private individual, an intermediary or an institutional investor, we can help you realise your financial objectives. We strive to always earn the right to be our clients’ first choice.
To find out how our approach can help you, please contact: +44 (0) 1534 283838 rbcwminternational@rbc.com www.rbcwealthmanagement.com/jersey
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Issued by Royal Bank of Canada (Channel Islands) Limited (“the Bank”) on behalf of RBC® companies that comprise RBC Wealth Management in the British Isles (“the BI Subsidiaries”). Certain financial services mentioned are provided by the BI Subsidiaries, other than the Bank. Depending on your financial circumstances, citizenship and or residency some products and services may not be available to you or may only be available to you from certain RBC Wealth Management offices in certain locations. The Bank is regulated by the Guernsey Financial Services Commission to carry on deposit taking and investment business and to act as custodian/trustee of collective investment schemes in Guernsey. The Bank is also regulated by the Jersey Financial Services Commission in the conduct of deposit taking, fund services and investment business in Jersey. The Bank’s terms and conditions are updated from time to time and can be found at www.rbcwminternational.com/terms-and-conditions-British-Isles.html. Registered Office: PO Box 48, Canada Court, St Peter Port, Guernsey, GY1 3BQ, Channel Islands. Registered company number 3295. Deposits made with the offices of the Bank in Guernsey and Jersey are not covered by the UK Financial Services Commission Compensation Scheme. Copies of the latest audited accounts are available on request from either the registered office or Jersey Branch: 19 - 21 Broad Street, St Helier, Jersey JE1 8PB, Channel Islands. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. *Scorpio Partnership Global Banking KPI Benchmark 2012. 105071 (04/13)
Trusts | Foundations | Funds | Banking | Compliance | Islamic Finance Investment Management | Jersey Roundtable | Information & Communications Technologies
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Why your wealth manager should never stop
managing your portfolio. The issue with investment opportunities is that they rarely stay opportunities for long. 5PP PĹ?FO POF CMJOLT BOE UIFZĂ WF HPOF Which is why we at UBS believe in proactively managing your portfolio. It means your client advisor will seek out new investment opportunities, based on the latest market developments. And regularly review your portfolio, balancing BOE PQUJNJ[JOH JU BDDPSEJOH UP ZPVS SJTL QSPĹ–MF But one thing remains constant throughout all of this. 0VS DPNNJUNFOU UP NFFUJOH ZPVS Ĺ–OBODJBM HPBMT "OE UIBUĂ T TPNFUIJOH XFĂ MM OFWFS TUPQ EPJOH
The value of an investment and the income from it can fall as well as rise as a result of market BOE DVSSFODZ Ĺ—VDUVBUJPOT BOE ZPV NBZ OPU HFU CBDL the amount originally invested.
UBS AG Jersey Branch 24 Union Street St. Helier Jersey JE4 8UJ 01534 701 000
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UBS AG, Jersey Branch is regulated by the Jersey Financial Services Commission for the conduct of banking, funds and investment business. Terms and conditions are available upon request. Š UBS 2013. All rights reserved.
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Published by
Time International Media & Events Services Ltd. 3-4 Rumsey House, Locks Hill, Rochford, Essex, SS4 1BB, UK. T: +44 (0)1702 53 0000 | F: +44 (0)1702 53 3088 | E: mail@timesgroup.co.uk | W: www.timesgroup.co.uk In partnership with
Jersey Finance Limited 4th Floor, Sir Walter Raleigh House, 48-50 Esplanade, St Helier, Jersey JE2 3QB, Channel Islands. T: +44 (0)1534 836000 | F: +44 (0)1534 836001 | E: info@jerseyfinance.je | W: www.jerseyfinance.je
N.B. This publication has been produced by the Times Group without any financial contribution from Jersey Finance Limited. Publication Consultants David Vieira, Head of Marketing, Jersey Finance Limited Peter Musker, Communications Officer, Jersey Finance Limited Editorial Department Wayne Fessey, Editor John Willman, Consulting Editor Production Department Design Vision (UK) Ltd., Design & Production designvision123@yahoo.co.uk Claire Silva, Production Coordinator Publisher Kevin Sammon Directors Mark Brown and Kevin Sammon
Acknowledgements: The editor would like to thank the following individuals and organisations for their invaluable assistance towards producing this publication: Cathy Keir – States of Jersey • John Harris – Jersey Financial Services Commission • Geoff Cook, David Vieira, Piers Gould and Peter Musker – Jersey Finance Ltd • Mike Sunier and Adam Riddell – Crystal PR • Ben Perron – Jersey Tourism The views expressed in Jersey ~ First for Finance are not necessarily shared by Jersey Finance Limited, nor should they be taken as the views of the editor or Time International Media & Events Services Ltd. (the publishers). Jersey Finance Limited has not sought to dictate the content of the articles appearing within this publication. The views expressed are those of the individual contributors. No responsibility or liability is accepted by Jersey Finance Limited, the editor or the publishers for any loss occasioned to any person, legal or physical, acting or refraining from action as a result of any statement, fact, figure, expression of opinion or belief contained in Jersey ~ First for Finance. The publication of advertisements does not in any way imply endorsement by Jersey Finance Limited, the editor or the publishers, of the products or services referred to therein. The entire contents of this publication are protected by copyright, full details of which are available on request. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission from Time International Media & Events Services Ltd. or Jersey Finance Limited.
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GOLD STANDARD AWARD WINNERS FOR DISCRETIONARY PORTFOLIO MANAGEMENT 2012 Contact Tim Childe, Head of Jersey Office on +44 (0)1534 506 070 or visit quiltercheviot.com
The value of investments, and the income from them, can go down as well as up and you may not recover what you invest. Past performance is no guarantee of future returns. Quilter Cheviot Limited is registered in England with number 01923571, registered office at St Helen’s, 1 Undershaft, London EC3A 8BB. Quilter Cheviot Limited is a member of the London Stock Exchange and authorised and regulated by the Financial Conduct Authority and regulated under the Financial Services (Jersey) Law 1998 by the Jersey Financial Services Commission for the conduct of investment business in Jersey and by the Guernsey Financial Services Commission under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 to carry on investment business in the Bailiwick of Guernsey.
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ADDITIONAL RESOURCES
ADDITIONAL RESOURCES JERSEY FINANCE www.jerseyfinance.je Jersey Finance is the official body funded jointly by Jersey’s Government and Finance Industry to represent and promote the Island as an international finance centre of excellence, both within and outside the Island. JERSEY GOVERNMENT AND REGULATION www.gov.je The official website of the Government of the Island of Jersey.
JERSEY
www.jerseyfsc.org The Jersey Financial Services Commission, responsible for the regulation and supervision of the Island’s financial services industry.
JERSEY FINANCE OFFICES Jersey Jersey Finance Limited, 4th Floor, Sir Walter Raleigh House, 48-50 Esplanade, Jersey JE2 3QB, Channel Islands T: +44 (0)1534 836000 | F: +44 (0)1534 836001 | E: jersey@jerseyfinance.je
www.locatejersey.com The official website of Locate Jersey which assists individuals or organisations looking to relocate to the Island.
London Jersey Finance Limited, Suite 604, Tower 4225, Old Broad Street, London EC2N 1HN, UK T: +44 (0)207 877 2317 | F: +44 (0)207 877 2316 | E: london@jerseyfinance.je
For details on Jersey residency contact: k.lemasney@gov.je DIGITAL JERSEY
Hong Kong Jersey Finance Limited, Room 5, 20th Floor, Central Tower, 28 Queen’s Road Central, Central, Hong Kong T: +852 2159 9652 | F: +852 2159 9688 | E: china@jerseyfinance.je
www.digital.je Working alongside government and industry, Digital Jersey coordinates activities towards improving the Island’s environment as a location of choice for digital business.
GCC Jersey Finance Limited, Regus, 1st Floor, C6Tower, PO Box 113100, Abu Dhabi, UAE T: + 971 2 406 9722 | F: + 971 2 406 9810 | E: abudhabi@jerseyfinance.je
THE JERSEY DEVELOPMENT COMPANY
Delhi (Sannam S4), 3rd Floor, Devika Tower, 6, Nehru Place, New Delhi - 110019, India T: +91 (0)11 4212 4100 | F: +91 (0)11 4212 4199 | E: india@jerseyfinance.je Mumbai (Sannam S4), B 205 Dynasty Business Park, Andheri Kurla Road, Andheri East, Mumbai - 400093, India T: +91 (0)22 6742 3211 | E: india@jerseyfinance.je
www.jerseydevelopment.je The Jersey Development Company (JDC) - wholly owned by the States of Jersey – develops States’ land and property assets no longer required for public service and the Waterfront development.
INDEX OF ADVERTISERS ADCB Ashburton (Jersey) Ltd Baker & Partners Brooks Macdonald International Channel Islands Stock Exchange, LBG Comsure Group Deutsche Bank Hawksford Group IFM Trust Limited J. P. Morgan
5 72 7 18 27 32 62 25 14 77
JT Kendrick Rose Logicalis Ogier Quilter RBC Wealth Management Sator Regulatory Consulting Limited Sure International UBS AG Jersey Branch Voisin and Volaw
IFC, 98 9 21 23 2 54, OBC 36 92 IBC 10
Jersey - First for Finance • 3
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CONTENTS
11 Preface By Senator Ian Gorst, Chief Minister, States of Jersey
15 Foreword By Senator Alan Maclean, Minister for Economic Development, States of Jersey
19 Introduction By Geoff Cook, Chief Executive, Jersey Finance
INTERNATIONAL RELATIONS
24 Jersey: committed to the highest standards By Colin Powell CBE, Adviser on International Affairs, Jersey Chief Minister’s Department
INTERNATIONAL OUTLOOK
29 Outlook 2013: Global macroeconomic trends By Sean Baudin, Senior Officer for Jersey and Head of Fiduciary Services, Clive T. Wright, Head of Private Wealth Management Offshore & Adam Moorshead, Head of Fund Administration, Kleinwort Benson
SUPERVISION AND REGULATION
33 Jersey’s robust and responsive regulatory regime By John Harris, Director General, Jersey Financial Services Commission (JFSC)
39 Take Five: Compliance INTERNATIONAL FINANCE CENTRE
42 The global reach of Jersey’s financial services Introduced by Jonathan White, Chairman of Jersey Finance
4 • Jersey - First for Finance
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WHERE YOUR SUCCESS WORKS FOR YOUR SUCCESSORS. OFFSHORE BANKING Security for the future. It’s what all ambitious people aspire to. With ADCB, you’re now able to ensure that your hard-earned wealth is protected in a way that gives you greater control of your financial resources. Our Offshore Banking Jersey branch is accessible via our award-winning online banking facility or in branches and ATMs throughout the UAE. To find out more about the peace of mind it offers, visit adcb.com, call 800 2030 or SMS OFFSHORE to 2626.
ADCB Offshore Banking – Jersey Branch is a registered business name of Abu Dhabi Commercial Bank PJSC, Jersey Branch (“ADCB Jersey”), which is regulated by the Jersey Financial Services Commission. Its principal place of business in Jersey is 27 Hill Street, St Helier, JE2 4UA. The registered head office of Abu Dhabi Commercial Bank is at Abu Dhabi Commercial Bank Head Office Building, Sheikh Zayed Street, Plot C-33, Sector E-11, P.O. Box 939, Abu Dhabi, U.A.E. Abu Dhabi Commercial Bank’s latest financial statements may be viewed at www.adcb.com. ADCB Jersey is a participant in the Jersey Banking Depositor Compensation Scheme. The Scheme offers protection for eligible deposits of up to £50,000. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the States of Jersey website: www.gov.je/dcs or on request. * Terms and Conditions apply.
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CONTENTS
44 Jersey Finance 2013 Roundtable TRUSTS
55 Protecting Jersey trusts By Alan Binnington, President, Jersey Association of Trust Companies (JATCo)
FOUNDATIONS
58 Jersey’s flexible foundation By Julian Hayden, Director, Hawksford
BANKING
63 Jersey’s diverse and thriving banking industry By Chris Blampied, President, Jersey Bankers Association (JBA)
FUNDS
66 Jersey: providing confidence to the global funds community By Nigel Strachan, Chairman, Jersey Funds Association (JFA)
CISX
69 A double market milestone By Tamara Menteshvili, Chief Executive, Channel Islands Stock Exchange (CISX)
73 Take Ten: Investment Management ISLAMIC FINANCE
78 Islamic Finance in Jersey By Trevor Norman, Chairman, Islamic Finance Community of Interest Group of Jersey Finance 6 • Jersey - First for Finance
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What do you see? Look again. Not everyone can see what is hidden. Find the answers at www.bakerandpartners.com
What do you see? Just another offshore law ďŹ rm?
PO Box 842, 2 Mulcaster Street, St Helier, Jersey JE4 0US Tel: +44 (0) 1534 766254
We aspire to be different. We are specialists with a reputation for excellence in complex trusts, commercial and civil litigation. We employ the sharpest legal minds, able to deliver the level of responsiveness and attention to detail you would expect from an international law ďŹ rm with swift, insightful and conclusive results.
Contact: Advocate Stephen Baker: stephenbaker@bakerandpartners.com, Advocate David Wilson: davidwilson@bakerandpartners.com, or Advocate Julian Gollop: juliangollop@bakerandpartners.com
Our no-nonsense, cost-effective approach to solving complex problems in contentious matters is our hallmark.
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After ten years in practice, we remain highly focused, pragmatic and astute. Call us and see the difference.
2012
LITIGATION / REGULATION / CRIME / INTERNATIONAL CO-OPERATION / INSOLVENCY / MATRIMONIAL / EMPLOYMENT / CONTENTIOUS TRUSTS
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CONTENTS
INSURANCE
82 Jersey as an insurance and protected cell structure domicile By Richard Packman, Chairman, Jersey International Insurance Association (JIIA)
LEGAL SYSTEM AND SERVICES
84 Without prejudice but with confidence By Neville Benbow, Chief Executive Officer, The Law Society of Jersey (LSJ)
ASSET RECOVERY
86 Taking action on asset recovery By Stephen Baker, Senior Partner, Baker & Partners
ACCOUNTING
90 Accounting for rapid change By Andy Isham, President, Jersey Society of Chartered and Certified Accountants (JSCCA)
ICT
93 Jersey’s digital revolution By Ted Ridgway Watt, Chief Executive Officer, Digital Jersey
96 First for global partnerships By Graham Hughes, Chief Executive, Sure Jersey
99 Cloud security By Tim Ringsdore, Managing Director, Global Enterprise - JT Group
8 • Jersey - First for Finance
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EXECUTIVE RECRUITMENT - In the Jersey market….. The economic downturn and global recession has had a significant impact in the local Jersey market, the worst the island has seen since the early 90’s, however, the outlook appears to be more optimistic and we are seeing a number of new roles being created at senior level. Businesses are now seeking to develop alternative business streams and are tightening internal operations on the risk and regulatory side. Employers are looking for key players who demonstrate real business acumen and importantly, this has brought some much-needed movement to the market. Candidates are also starting to look around for alternatives. With new vacancies being created, more people are feeling confident about testing the market and looking for alternative employment rather than sitting tight for fear of moving to a new and perhaps insecure position. Organisations are leaner, costs are a priority and having people on board with commercial agility – in addition to the prerequisite skills for roles at senior level – is critical. The good thing about the shift in economy
Shelley Kendrick is Director of executive recruitment specialist and HR consultancy, Kendrick Rose.
is that recruitment and selection processes within many organisations are now far more stringent. Employers are adopting a range of interview techniques, often incorporating psychometric ability testing and personality profiling to ensure they really are getting the ‘right fit’. On a final note, an important point to remember is that recruitment requires skill, don’t leave it to ‘gut reaction’. Amateurism will not do and interviewers should be trained and equipped with the skills to conduct effective interviews, ensure selection processes are robust, and furthermore, be great ambassadors for your company. More information about Kendrick Rose can be found at www.kendrickrose.com.
www.kendrickrose.com
Meticulous selection Kendrick Rose is an executive recruitment consultancy committed to resourcing excellence. Whether you are a client or candidate, Kendrick Rose meticulously focuses on matching an individual’s competency, goals and aspirations with an organisation’s culture and ethos. To find out more about how we can help you, contact Shelley Kendrick on 01534 715150 or 07797 744254 or email shelley.kendrick@kendrickrose.com
Lister House Chambers, 1st Floor, 35 The Parade, St. Helier, Jersey JE2 3QQ
RECRUITMENT AND SELECTION
| RESOURCING STRATEGIES
|
HR SOLUTIONS
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Two innovative ďŹ rms...
One colourful combination
Voisin law firm and Volaw trust company have created a strong reputation in developing and managing innovative financial structures including complex commercial transactions using Jersey entities. You can benefit from our unique combination of legal knowledge and fiduciary expertise in the establishment and administration of trusts, companies and partnerships that may be used for a wide variety of conventional and Islamic structured finance and capital markets transactions, specialist investment structures and in the preservation and management of family wealth. To see how our combined perspective can make all the difference, contact one of our experts today.
VOISIN LAW FIRM Ian Strang - ianstrang@voisinlaw.com or Nigel Pearmain - nigelpearmain@voisinlaw.com VOLAW TRUST COMPANY Robert Christensen - rchristensen@volaw.com or Trevor Norman - tnorman@volaw.com Voisin, Advocates, Solicitors & Notaries Public is a law firm regulated by the Law Society of Jersey. Volaw Trust & Corporate Services Limited is regulated by the Jersey Financial Services Commission.
www.voisinlaw.com www.volaw.com Templar House, Don Road, St Helier, Jersey JE1 1AW, Channel Islands. Tel: +44 (0)1534 500300 Fax: +44 (0)1534 500350 mail@voisinlaw.com mail@volaw.com
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PREFACE
Preface By Senator Ian Gorst
Jersey, like many countries around the world, has been responding to the worldwide financial crisis. We have reviewed our tax and spending and made changes to our public finances to protect against deficits and to maintain our significant reserves. The Island’s public finances remain some of the strongest in the world. Throughout these challenging times Jersey’s financial services industry has demonstrated an innovative and resilient approach to a fast changing global economy. As an international finance centre, our continued success depends on looking outwards to the opportunities for growth. We must compete in order to succeed, and increasingly we face aggressive competition from ambitious new centres located across the globe. We have to actively promote Jersey in the growing markets of Africa, Asia and Latin America, and at the same time we must continue to adjust to changing legal, regulatory and fiscal regimes, particularly in the UK and the rest of Europe. Pressure on the public finances of many governments and the austerity measures which have resulted across Europe have increased pressure on revenue authorities and renewed attention on all aspects of tax collection, avoidance and evasion. Jersey is keeping in step with the global direction of travel towards greater transparency. Our reputation for adherence to global standards and high quality regulation is a key strength of our financial services sector and we have joined in recent international developments to improve transparency and clamp down on criminality, including tax evasion. From our proceeds of crime legislation in 1999, which makes the use of Jersey to evade tax illegal, to our more recent commitments to the US FATCA and the G8 agenda, we in Jersey are playing an active role in combating tax evasion and aggressive tax avoidance.
Earlier this year Jersey Finance carried out a strategic review of the financial services industry, with the support of world class consultants, McKinsey. Designed to secure growth for the future, its recommendations are now being implemented. McKinsey anticipates tough challenges ahead with increased ring fencing and regulation, and continued globalisation. However it also found that these challenges could be offset by actively pursuing business growth opportunities. The review found that tax regimes would be unlikely to harmonise globally for many years and cross-border financial flows would continue to grow. In an increasingly uncertain world, Jersey’s political stability is helping it to retain its long standing appeal. Jersey’s industry has coped with the global economic downturn as well, if not better, than most of its peers, and our industry is sophisticated and highly interrelated compared to our competitors. It is accepted that it is more difficult to build a new financial services industry than to protect and develop an existing one, and the review found that the strategy of building the finance industry around the existing tax neutral platform is the most likely route to continued success. As the world changes, many business opportunities remain. Provided we take the right action now, we should be well placed to take advantage of those opportunities. This research highlighted stability and innovation as the two critical factors which will help our industry thrive. Those two characteristics have been part of our story for hundreds of years. McKinsey also stressed the need for greater government support of – and involvement
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PREFACE Courtesy Chris George
with – the development of our aspirations for the financial services industry. Our government has agreed the recommended approach, which identifies four key priorities: sustain the core, enhance enablers, capture adjacent growth, and reposition and build new capabilities. The first priority is to protect existing business from the threat of competitive challenges. We will place this ahead of moving into new sectors to ensure the longterm prosperity of our finance industry, while gradually diversifying into other areas. We recognise that a change of direction is required but that this change needs to be gradual and planned. Second, to stand out in today’s global industry a centre like ours must excel in the areas that determine investors’ choice of location: namely the legal, regulatory and business environments. These ‘business enablers’ are essential to future success. We will make sure we enhance the governmental, regulatory and legislative framework and do all we can to improve the business environment, allowing innovation to flourish within the private sector. Third, we need to consider how we might replace any business that looks vulnerable to loss. We will work hard to support existing business to capture adjacent growth in products, services and markets. We will also strive to attract new players from both existing and new markets. We have already started the process of diversifying geographically, and work on this will be ongoing in the months and years ahead. The fourth priority is to explore more ambitious opportunities in less familiar business territory. These opportunities tend to be in the higher added-value elements of the value chain and often require a broader set of stakeholders. The next step following the McKinsey review has been for the Chief Minister to take lead responsibility for the industry, with operational support from the Treasury Minister. We have formed a steering committee on which government, the industry and the regulator are all represented, and which will recommend what decisions are required to maintain progress and ensure that Jersey remains a top-rated international finance centre. Our internationally recognised reputation for being transparent and well regulated is a key strength of our financial services sector and it is in the Island’s long-
12 • Jersey - First for Finance
Courtesy Chris George
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PREFACE
term interests to keep in step with the global direction of travel towards greater transparency. Following the G8 summit, we have agreed that as further international agreements are reached, Jersey will continue to build on a long track record of commitment to – and compliance with – global standards on financial regulation, anti-money laundering, tax transparency and exchange of information. As stated in our Action Plan, published to coincide with the G8 Summit in June, we are already recognised internationally as being a leader in capturing beneficial ownership information. We have agreed to join the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters, and have committed to the pilot project that the UK initiated with EU Member States to achieve a single standard for enhanced automatic exchange of information. We are also close to completing the negotiation of enhanced information exchange agreements with the UK and the USA. We have welcomed the emphasis placed by the G8 on assisting the developing countries in raising their tax raising capacity. We have offered to provide technical assistance to developing countries through approaches made to the African Tax Administration Forum and the UK’s Department for International Development, among others. Courtesy Danny Evans (Jersey Tourism)
Our experience to-date provides ample evidence that there need be no conflict between compliance with international standards on information exchange and continued success as an international finance centre. We believe that lower taxes, fairly applied across the world, are a vital driver of growth and prosperity. At the same time we will continue to support the work of the international standard setters, particularly in the fight against tax evasion. To be successful, this work requires global action on a level playing field. In the global response to the financial crisis, Jersey is part of the solution not the problem. A report prepared by the respected independent firm Capital Economics, has found that Jersey provides a net benefit to the United Kingdom of almost £500 million a year and supports around 180,000 British jobs. Jersey facilitates cross-border capital flows that have supported investment and oiled the mechanism of the
financial markets. Funds drawn from all over the world have been upstreamed to the City of London where they help meet the liquidity requirements of parent banks and lessen the need of banks for UK government funding We can continue to thrive but to do so government, industry and the regulator must work together to ensure that we continue to offer an attractive ‘product’ to all present and potential users of the financial services we can provide and take full advantage of the business opportunities that will be available. Our competitors are not standing still and neither can we. There is much to do but we have the expertise and the track record to maintain a strong financial services industry into the future. We have excellent professional businesses in all our key sectors and can be confident in our collective ability to deal with the current and future challenges. Our financial services industry has proved innovative and resilient in meeting the challenges of recent years. I know we will continue to succeed in these efforts and ensure that we remain a truly global finance centre which benefits all Island residents.
Senator Ian Gorst Senator Ian Gorst was elected as Chief Minister of Jersey on 14th November 2011. First elected to the States Assembly in 2005, Senator Gorst’s previous role was as Minister for Social Security. He also served concurrently as Chairman of the Jersey Overseas Aid Commission. Previously, he acted as an Assistant Minister in both the Chief Minister’s Department and in the Treasury Department. Senator Gorst is an accountant with significant experience in private client, private equity and retail fund sectors. Married to Dionne, they have two daughters, Sophia and Lilly-Mim. Senator Gorst is actively involved in the church and serves as a Governor at Le Rocquier School. He has a keen interest in overseas development and he and his wife have travelled to participate in Jersey Overseas Aid Commission projects. He is also an Honorary Fellow of UNICEF UK.
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Preserving and enhancing clients’ assets globally through fiduciary management services
J e r s e y • S o u t h Af r ic a • S w itze r la n d • Ne w Ze a l a nd • U K
www.ifmtrust.com IFM Trust Limited is Regulated by the Jersey Financial Services Commission
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FOREWORD
Foreword By Senator Alan Maclean
While the financial crisis has had a significant effect upon international finance centres around the world, through continued evolution and diversification Jersey continues to win business in existing markets as well as develop new markets and business. Internationally, Jersey seeks to be at the forefront of developments, as well as locally continuing to develop its legislation to enhance the offerings of the jurisdiction and place Jersey in a prime position to take advantage of opportunities available on the global stage. The most recent figures provided by the States of Jersey Statistics Unit in its survey of financial institutions for 2012 show that many sectors are continuing to develop with, for example, profits increasing in the trust and company administration sector by over 25% since 2010 whilst the finance services industry as a whole is optimistic for the future. As Minister for Economic Development I have been actively engaged in promoting and progressing the legislation that is an essential part of Jersey’s infrastructure, and therefore of its continuing success as an international finance centre, a role that, as a result of the recommendations in a study undertaken by Mc Kinsey, will now pass to the Chief Minister. The success we have had in the development of our domestic legislation is the result of the close links between government, the regulator and the finance industry and the high quality of our internationally respected legislation. While the global economy has
seen many ups and downs over the last 50 years, the financial services industry in Jersey has consistently proven its ability to modernise and diversify to meet new challenges. A recent example of this is the response of the jurisdiction in relation to the Alternative Investment Fund Managers Directive (AIFMD). The funds sector is a significant part of Jersey’s financial services industry and although AIFMD does not have a direct effect on Jersey, it will impact on the ability for Jersey based fund managers, funds and depositaries to be marketed and continue business within the European Economic Area from 22 July 2013. In response to the significance of AIFMD to Jersey’s funds industry, government has worked closely with the regulator and the finance industry to ensure that Jersey is in the best possible position to conduct business within the European Economic Area after 22 July 2013. Government’s response has included making new Regulations and Orders which address the full requirements of AIFMD. The timely reaction of the jurisdiction to enhance Jersey’s funds regime in response to AIFMD would not have been possible in the timeframe available without the close working relationship between the government, the regulator and the finance industry. Jersey has been a prominent player in the field of administering trusts since the 1960s and the ongoing development of our domestic legislation has sought to maintain Jersey’s position as the leading trusts and wealth management jurisdiction globally. Trusts remain at the heart of the service offered by the Island’s financial services
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FOREWORD Courtesy Danny Evans (Jersey Tourism)
companies and a broad range of service providers are doing business in Jersey, from large banks and independently owned trust companies to the smaller, niche providers. The most recent amendment to the Trusts Law came into force in late 2012 and maintained the jurisdiction’s reputation for steady and sensible developments which develop and improve the Trusts Law in a manner that benefits settlors, trustees and beneficiaries. The changes are a direct result of the close partnership between the trusts sector and the government in Jersey which seeks to ensure the continued success of the Trusts Law and enhance its offering. This continuing commitment is evident by the fact that currently, a further amendment to the Trusts Law is lodged for debate by the States Assembly in July 2013 and discussions over further developments of the Law are ongoing between government and industry. The continuing developments with the new Security Interests Law have resulted in an Appointed Day Act being lodged which proposes that the legislation be brought into force in a phased approach over 2013/2014. The Security Interests Law will be one of the most advanced laws of any jurisdiction in this area due to its focus on transparency through registration of Security Interests on a publically available Security Interests Register hosted by the Jersey Financial Services Comm ission. The Register that has been developed is a truly world leading register which will allow for registrations to be made and viewed by industry online with ease. Similar developments have been made recently in the variety of corporate structures available to those doing business in Jersey. Through continuing engagement with industry, facilitated by working groups containing representatives from both government and Jersey Finance, an amendment was made in early 2013 to the existing Limited Liability Partnerships (LLP) Law to remove the requirement for a £5 million bond. It is felt that this amendment will assist members of industry that previously wished to make use of the LLP Law but were unable due to the £5 million bond requirement. This move comes in advance of the introduction of a comprehensive new LLP Law which has been developed by government to address the continuing demands of the financial services marketplace. As these examples clearly demonstrate, we in government are committed to ensuring that the financial services industry in Jersey has got the best possible product offering. By working with experts in industry to ensure
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FOREWORD
ships in those regions for the future prosperity of the financial services industry in Jersey. Since Locate Jersey was established as the successor to Jersey Enterprise it has continued to promote Jersey as open for inward investment business and assisted businesses to move easily and efficiently to the jurisdiction. Despite the prevailing economic climate, there has been success in welcoming a number of private equity funds, asset management firms, corporate service providers, as well as trust and company businesses to Jersey. There has also been success in attracting a number of mining companies to the jurisdiction whose relocation has been in part due to the reputation of the financial services industry in Jersey. Through our continuing ‘Jersey – Open for Business’ promotional events we hope to encourage further inward investment in financial services in the coming years.
that the Island’s financial services legislation remains at the international forefront, we will make certain that the financial services sector is primed and ready to deliver the growth we have typically enjoyed over many years. Engagement and cooperation with local industry bodies has also been critical to ensuring the continued strength of the financial services industry in Jersey. Jersey Finance, as the marketing and promotional arm of the financial services industry, has been crucial in promoting the finance industry of the Island and in a time of global change, getting the correct message out to those around the world who look to do business in Jersey. A key part of recent government engagement with Jersey Finance has been the reports prepared by both McKinsey and Capital Economics. The report produced by Capital Economics is important in the current climate to demonstrate the true value of Jersey to Britain. Key findings from that report are that Jersey helps the UK generate around £2.3 billion in tax revenues each year and supports 180,000 British jobs. Further to this, each year, Jersey banks provide around £120 billion in ‘upstreaming’ to parent operations in the UK, representing 1.5% of the funding of the whole UK banking system. The report also concludes that Jersey has significant net additional benefit to the UK – it estimates that 84% of the financial services businesses would be at risk of leaving the sterling zone if Jersey did not exist. The findings of this report are relevant in the current climate of greater international scrutiny to demonstrate the value
that we provide to the UK with whom we also share significant historical and cultural links. Jersey Finance continues to undertake promotional and marketing activity in foreign jurisdictions around the world which seeks to expand on the international client base of the financial services industry in Jersey. Recent visits to both the United Arab Emirates and China by politicians, government officers and representatives of Jersey Finance have sought to further develop business links in those regions. From my own perspective, having visited China on a similar visit in 2012, it cannot be underestimated how important it is to build relation-
It is clear that the global nature of financial services business is changing at an ever increasing pace. However, as the nature of financial services business has changed and developed, Jersey had proved time and again its ability to develop its products and services to meet international demand. We will continue to take a proactive approach in the development of the financial services industry in Jersey therefore allowing the island to maintain its reputation as a leading international finance centre.
Senator Alan Maclean Senator Alan Maclean is the Minister for Economic Development, States of Jersey. Alan Maclean had extensive private sector business experience prior to entering political life, establishing a marketing and public relations company in 1988 and in 1995 setting up property management, investment and agency businesses. He was elected to the States of Jersey on 5 December, 2005, representing St Helier No. 2 district, and served as an Assistant Minister for Economic Development with specific responsibility for Harbours and Airport. In the 2008 elections he successfully stood for Senator and was elected Minister for Economic Development. Following the 2011 elections he was re-elected Minister for Economic Development and now holds the position for a second term.
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Protecting & enhancing wealth Brooks Macdonald International offer discretionary, advisory and dealing services tailored to meet trustees, high net worth individuals, pension funds and charities needs. www.brooksmacdonald.com/ci Jersey
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Brooks Macdonald International is a business name of Brooks Macdonald Asset Management (International) Limited which is licensed and regulated by the Guernsey Financial Services Commission. Its Jersey branch is licensed and regulated by the Jersey Financial Services Commission. Registered ofďŹ ce: Yorkshire House, Le Truchot, St Peter Port, Guernsey, GY1 1WD. Registration 47575.
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INTRODUCTION
Introduction By Geoff Cook
Jersey’s success as an International Finance Centre (IFC) relies on its ability to evolve and adapt to changing market conditions. But behind this drive for innovation and growth are the consistent factors which have kept Jersey at the forefront of finance jurisdictions for more than 50 years.
The Jersey authorities have invested in a robust IT infrastructure to support the activity and the frequent air travel links to London and the continent, the favourable UK time zone, proximity to the City of London, even the English language spoken in the Island, all play their part in adding to our global recognition as a leading IFC.
Based on the firm foundation of tax neutrality, Jersey has been attracting bank deposits and investments from corporate institutions and private clients across the world for decades and whilst other articles in this edition of Jersey ~ First for Finance will explore the development of business in new regions and markets, it is important that we also showcase the original features of the jurisdiction, the building blocks which have enabled practitioners to attract international business to Jersey for so long.
That combination, the high level of experience and expertise offered by Jersey’s finance industry providers, together with Jersey’s first class, closely aligned infrastructure of professionals and endorsement as the world’s leading offshore centre (Global Financial Centres Index - March 2013, Citywealth Awards ‘Best IFC 2013’, Wealthbriefing Awards ‘Best IFC 2013’) has been the key to attracting business and investors alike in banking, funds, private client services and increasingly in capital markets activity. The figures make for impressive reading:
Jersey’s success has been built upon the key combinations of political independence and economic stability, underpinned by a favourable time zone which matches that of the City of London and a mature and respected legal and regulatory system. Within that environment, the major finance industry providers have established offices, frequently as part of their global network. There are 42 international banks based in St Helier, nearly 900 regulated trust company businesses and approaching 190 trust and company service providers. Jersey has access to all major professional service firms and is home to five of the first tier offshore legal practices, in total, there are more than 12,000 finance industry professionals, which is the largest number of any offshore centre and they include approximately 1,200 members of the Society of Trust and Estate Practitioners (STEP), their largest branch worldwide.
Statistics recorded for Q1 2013 by the Jersey Financial Services Commission show that there are close to 1,400 funds with a net asset value of funds under administration of just over £200 billion and a further £22.7 billion funds under investment management; while the 42 international banks account for more than £155.1 billion in deposits, a large proportion of which is non-sterling. There are nearly 100 Jersey companies listed on worldwide stock exchanges with a combined market capitalisation of over £150 billion and Jersey is increasingly a gateway for companies from new markets wishing to achieve a listing on leading exchanges. Jersey also has the greatest number of FTSE 100 companies registered outside the UK. Alongside Jersey’s core finance industry sectors, we have also developed first class capa-
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INTRODUCTION Courtesy Chris George
bilities in popular growth areas such as Islamic finance, clean-tech and philanthropy. EVOLUTION One of the key ingredients in the industry’s success has been an ability to evolve and revise the regulatory and legislative armoury of the Island in order to remain competitive with other jurisdictions and to meet international investor needs, as well as international standards, which are evolving rapidly. There have been a number of enhancements to Jersey’s funds regime in the last 18 months, beginning with the introduction of the Private Placement Regime last year which extended the range of funds and widened the choice available to investors. Private Placement Funds are closed ended funds available to a limited number of sophisticated institutional or professional investors. This year we have seen the introduction of new regulations to mirror the EU’s Alternative Investment Fund Managers Directive (AIFMD) and the signing of a cooperation agreement by the Jersey regulator with the European Securities and Market Authority (ESMA) in May, enabling alternative investment managers using Jersey to continue to seamlessly market into Europe through private placement arrangements until at least 2018. 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, remains under constant review and is frequently subject to enhancements. Amendment No.5 was implemented in 2012 to bring clarity and certainty to a number of areas of Jersey law and more changes are planned this year. Amendments to Limited Liability Partnerships came into force earlier this year to make it more appealing to corporate clients and there were changes to Stamp Duty payable on deceased estates, with the re-introduction of a cap, welcome news for those wishing to retain Jersey assets in their own name. INTERNATIONAL COOPERATION Alongside regulatory measures, much progress has been made in reaching agreements with regulators in other countries and governments as Jersey continues to play its part in increasing the global drive to stamp out tax evasion, fraud and in more recent times, aggressive tax avoidance schemes. Jersey’s cooperative status has been well documented in recent years and includes a high rating from the IMF as one of the best global IFCs and a favourable British
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INTRODUCTION Courtesy Chris George
Crown Dependencies review from the UK Government in 2009. The Jersey authorities have signed 39 international tax agreements all of which meet the OECD standard on transparency and information exchange. These agreements, 31 Tax Information Exchange Agreements (TIEAs) and eight Double Taxation Agreements (DTAs), assist in building good quality business with those countries and are also a reflection of Jersey’s commitment to comply with international standards and to cooperate fully with international moves in this respect. Jersey has no banking secrecy laws and regulations are in place so that any entity, including a trust, is fully accessible under the terms of the TIEA agreements we have in place. Jersey remains one of the best regulated IFCs, a position that has been acknowledged by independent assessments from some of the world’s leading bodies including the OECD and IMF and while we welcome measures designed to combat tax evasion, we would encourage the international community through the G20 to ensure any such measures are applied consistently and on a level playing field basis.
stability, expertise and for being a trustworthy jurisdiction of substance and long term pedigree.
WORLD CLASS Regardless of the more challenging market conditions for everyone, Jersey continues to grow in size and stature as a world class IFC. High quality service, innovation and client confidentiality remain at the core of Jersey’s offering and we have worked hard to retain our reputation for
Moves to enhance our overseas presence in key locations is proving successful and is helping to expand our appeal amongst international investors and their advisers at a time when stability, rigorous corporate oversight and a flight to quality are key factors in the mind of the global investment community. Courtesy Chris George
Geoff Cook Geoff Cook is the Chief Executive of Jersey Finance. Geoff Cook joined Jersey Finance as Chief Executive in January 2007. In promoting the finance industry of Jersey, Geoff visits many of the world’s leading finance centres on a regular basis, highlighting the strengths of Jersey as a financial jurisdiction and updating Government officials, regulators, finance professionals and international investors on legal and regulatory developments and service innovations offered by Jersey. In addition to speaking at Jersey Finance hosted events, Geoff is a regular speaker and contributor to conferences and seminars around the world and he writes frequently on the issues affecting Jersey and other finance centres in leading publications. Previous to his role at Jersey Finance, he was Head of Wealth Management for HSBC Bank Plc – based in London – and responsible for the delivery of Financial Planning Services to the 10 million HSBC customers in the UK. His earlier career was spent at a senior management level with HSBC Bank plc in the UK and as Head of Personal Financial Services and Deputy to the Chief Executive at HSBC Bank International Limited in Jersey. Geoff is a Fellow of the ifs School of Finance, a Fellow of the Chartered Institute of Securities & Investment, a Member of STEP and a Member of the Worshipful Company of International Bankers.
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Understanding that relationships are key. It’s in our nature. The qualities you need in a legal, trust, fund and corporate administration firm come naturally to us. We have long-established relationships with all of the leading international accountancy practices as well as many of the world’s most wealthy families and major investment houses. We are instructed by the majority of the leading global law firms and financial institutions. We have a flexible and commercial approach and are focused on delivering outstanding client service.
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INTERNATIONAL RELATIONS Courtesy Danny Evans (Jersey Tourism)
Jersey: committed to the highest standards By Colin Powell CBE
High on the international agenda currently is enhancing transparency and information exchange to help in combating tax evasion and aggressive tax avoidance and recover lost tax revenues. Whether it is the G8, the G20, the OECD, the EU or individual jurisdictions such as the UK, the message is the same. The current international standard for tax purposes calls for jurisdictions to ensure that information is available, accessible and exchangeable on request. What is now on the agenda is automatic exchange of information. To quote from the communiquĂŠ issued in April
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Fiduciary Family Office Wills & Probate Succession Planning Employee Solutions Funds Advisory Media & Sports Corporate Solutions
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INTERNATIONAL RELATIONS Courtesy Chris George
2013 following a meeting of G20 finance ministers: “We welcome progress made towards automatic exchange of information which is expected to be the standard and urge all jurisdictions to move towards exchanging information automatically with their treaty partners, as appropriate.” Jersey is fully committed to the current international standard and has been an active participant in the work of the Global Forum on Transparency and Information Exchange for Tax Purposes, a body of which some 120 jurisdictions are now members. To oversee the process of assessing compliance, a peer review group was set up chaired by France with four vice chairs from India, Japan, Jersey and Singapore. As a vice chair Jersey has been closely involved in ensuring the consistent application of the standard on a global basis and has sought to lead by example. Jersey is maintaining an active programme of negotiating agreements predominantly with EU, OECD and G20 member jurisdictions. This has served to enhance the Island’s international personality, and generally has helped to engender a more favourable view of the Island amongst the international community. The present international standard can be met through either a Tax Information Exchange Agreement (TIEA) or a Double Tax Agreement (DTA). The advantage of a DTA is that it offers benefits to individuals and the business community through the avoidance of double taxation or reduced rates of withholding tax, in addition to providing for exchange of information to the international standard. At the time of writing a total of 31 TIEAs and eight DTAs have been signed of which 25 TIEAs and four DTAs are in force. Almost without exception the delay in bringing agreements into force is due to the length of time taken by the other parties to the agreements to complete their domestic procedures for the ratification of the agreements. Agreements have been signed - or negotiations have been completed or are well advanced - with 25 of the 27 EU member states, 33 of the 34 OECD members and 17 of the 19 G20 countries (the 20th member of the G20 is the European Union). Jersey is party to the Peer Review process of assessment of compliance with the international standards and a report of the assessment of Jersey was published at the end of October 2011. The review concluded that Jersey’s domestic laws provide a satisfactory framework for the
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A Fresh Perspective. Experience the difference of a highly personalised exchange service with a pragmatic approach and swift, expert response.
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INTERNATIONAL RELATIONS Courtesy Chris George
of jurisdictions in respect of information and enforcement of rules on beneficial ownership and has been presented as a model by the World Bank. Jersey recognises that for its future as an international finance centre it is important to continue to be recognised by the international community as a jurisdiction with high levels of compliance with the international standards. At the same time the Island’s competitiveness and overall economic interests need to be safeguarded. With this in mind Jersey fully supports the efforts of the international organisations concerned to obtain a global commitment to compliance with the standards being set, for thereby there will be far less risk that Jersey in maintaining high standards will lose business to noncompliant jurisdictions.
exchange of relevant information. The assessors said “overall, this review of Jersey identifies a legal and regulatory framework for the exchange of information which generally functions effectively to ensure that the required information will be available and accessible… Jersey practices to date have demonstrated a responsive and cooperative approach”. There were some recommendations in the report to strengthen further the existing laws and regulations and these have all been acted upon. When automatic exchange of information becomes the new international standard it is to be confidently expected that Jersey will commit to compliance with the same strength of purpose as has been the practice to date. Not only for taxation but also for international standards of financial regulation and AML where the Island’s good practice has been recognised by such bodies as the IMF and the Financial Stability Board. Already an intergovernmental agreement has been negotiated with the US to meet the automatic exchange of information requirments of the US Foreign Account Tax Compliance Act (FATCA). Also negotiated is an intergovernmental agreement with the UK which mirrors that with the US and which reflects Jersey’s special relationship with the UK and the general commitment to join in the fight against tax evasion. Other initiatives promoted by the UK in concert with the EU and the OECD are designed to extend more widely automatic information exchange based on the FATCA agreements with the US. Jersey accepts that this is the
28 • Jersey - First for Finance
future direction and has made it clear that it wants to be included as an active participant in the process as it is developed by the EU and the OECD. Jersey also shares with the UK in the desire to avoid a proliferation of different agreements and to develop a single standard for automatic exchange of information. The UK also declared its intention to use the G8 Summit in June 2013 to obtain agreement on the formulation of action plans for improving the availability and accessibility of information on beneficial ownership. This is welcomed by Jersey which has long been at the forefront Courtesy Danny Evans (Jersey Tourism)
With the support of government, Jersey Finance in association with McKinsey, have conducted a Strategic Jurisdictional Review which has formulated a plan designed to sustain the success of the finance industry for the benefit of all Island residents. A study commissioned from Capital Economics has also shown how the Island contributes to the UK economy and to world financial markets. Armed with the results of these two studies, government - working closely with the finance industry and the regulator - is embarking on a programme which all are confident will both meet the challenges, exploit the business opportunities and secure the long term success of Jersey’s finance industry and thereby the Island’s economy.
Colin Powell CBE Colin Powell CBE, is Adviser - International Affairs to the Chief Minister. He is the immediate past Chairman of the Jersey Financial Services Commission, having held the post for 10 years until his retirement in September 2009. He has been Chairman of the Offshore Group of Banking Supervisors (OGBS) since 1981 and represents the OGBS at meetings of the Financial Action Task Force. He held posts as Economic Adviser and Chief Adviser to the States of Jersey between 1969 and 1999 and was responsible for advising on Jersey’s economic development strategy, including its development as an international finance centre.
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INTERNATIONAL OUTLOOK
Outlook 2013 Global macroeconomic trends By Sean Baudin, Clive T. Wright & Adam Moorshead
Many investors have rediscovered the words of American economist Herbert Stein: “If something cannot go on forever, it will stop.” The second quarter of 2013 has been dominated by markets trying to guess when central bank liquidity flows – or quantitative easing (QE) – will begin to slow. The concern is a legitimate one. QE has been one of the most powerful drivers of the global equity and bond rally that began in 2009. Since then massive monetary intervention has ignited – and sustained – a global asset bull run. This has happened despite weak global economic performance, fears that the euro zone would break apart, and mountains of sovereign and private debt. When QE stops, will asset prices correct? If so, by how much? What we do know is that QE must come to an end at some point. Printing more money and adding this to the economy, all else being equal, leads to dangerous inflationary pressure.
The Bank of England, an early QE adopter, has already stated that inflation will be above target for the next two years. Furthermore, QE is likely to have diminishing returns the longer it is employed, reducing the incentive to keep carrying the inflation risk. The two most recent examples of shifts from expansionary to contractionary monetary policy suggest that markets hold up fairly well. Moreover, those examples occurred with equity valuations higher than today. Admittedly, those instances were in the relatively simpler times of conventional monetary policy. The euro zone has seen its GDP declining, yet leading economic indicators seemed to base out in the latter part of 2012, sending encouraging signs for a gradual recovery. On the political front, the market confronted an inconclusive result in the Italian elections (which was subsequently resolved) and the poorly dealt with bail-out of the Cypriot state. The markets, however, encouraged by the accommodative stance of the European Central
Bank (ECB) and the newly held belief that the ECB would provide ultimate support, continued to move ahead strongly without the huge volatility seen in recent periods. Emerging markets have traditionally been considered as ‘small nations’ with high economic growth rates, while developed markets have been considered to be ‘large’, with mature economies and low, stable growth rates. Yet this paradigm is being turned on its head as we progress through the decade. Of the world’s top 20 largest economies, nine are emerging countries, which combine high growth rates with increased size and scale. The rebalancing of this paradigm is arguably more visible in China than anywhere else. China’s rise has been staggering. In a generation, it has gone from mass poverty to being the second largest economy in the world. Not only is the country a bellwether of the opportunities and risks inherent in emerging markets but, also,
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INTERNATIONAL OUTLOOK
its insatiable consumption has a direct bearing on the performance of the wider emerging market basket. IMPLICATIONS FOR JERSEY Jersey has not been immune to global macroeconomic trends and as western economies have suffered, Jersey too has found it a challenge to maintain steady growth. Nevertheless, many of the immediate risks that had worried investors in 2012 have faded into the background. The US has avoided falling over its fiscal cliff and conditions in the euro zone now appear more stable. Jersey weathered the storm much better than most and as the outlook improves, with a leaner and fitter finance industry, it is well positioned to maintain and build on its reputation as a leading international finance centre.
Kleinwort Benson, we have a client establishing a fund to invest in dairy farms in New Zealand, specifically to supply dairy products to China. These are not investors who are interested in aggressive tax planning. Rather, they are investing in funds based in the Channel Islands because of the stable legal and political systems, and the depth of experience of local service providers. The growing significance of funds is worth noting. In parallel with the recent macroeconomic trends there is of course a changing regulatory environment for banks, which are withdrawing from areas of what has been their traditional business. New funds are replacing banks in the provision of liquidity.
Contrary to some views, the Channel Islands’ finance industry is no longer driven by aggressive tax planning but is based on quality service providers, be they law firms, accountants, administrators or banks, and will continue to evolve as the international financial climate changes.
Such funds are making loans to small and medium sized enterprises, loans to residential housing developers, and to the development of social and private rented housing, student housing, clean energy and energy saving, and to a broad range of infrastructure.
For example, Jersey Dairy recently announced two contracts to supply dairy products to China, who have had significant issues with their food supply chain. At
These funds also have strong political backing and typically have cornerstone investors such as the European Bank of Recovery and Development, the European
30 • Jersey - First for Finance
Investment Fund, and Sovereign Wealth Funds from around the world. On the back of those cornerstone investors, large amounts of institutional investment from pension funds and insurance companies are being invested in the UK, in Europe and in the wider global economy. THE IMPACT FOR JERSEY WEALTH MANAGEMENT COMPANIES UK and European markets remain important for Jersey. For those living international lives with international businesses, Jersey is an appealing location. However, the typical client and their requirements have changed for good. While discretionary investment management remains a vital offering for individual clients and families, clients are becoming increasingly sophisticated and want an active part in the investment process and decision making. Advisory solutions are now a key element for any investment manager. Just as macroeconomic change is partly driven by emerging markets, so too an increasing number of new clients come from emerging markets such as the Middle East, Africa, Latin America, India, Russia and Asia. They
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INTERNATIONAL OUTLOOK
Sean Baudin Sean Baudin was appointed to the role of Senior Officer of the Jersey Office and Head of Private Fiduciary Services, spanning operations out of Guernsey, Jersey, Isle of Man and London, in July 2011. Sean joined Kleinwort Benson as a Trust Officer in 1989, subsequently movingup through the ranks of the Trust Company and was appointed as a Director onto the board in 1998. Sean is a member of STEP, having passed the Diploma for International Trust Management with distinctions in all subjects.
Clive T. Wright
each come with their own preferences and styles for investing, which is also forcing change. For example, the 2013 wealth report gives us a good example where a typical ‘high net worth’ from Asia may allocate 25% to real estate and 22% to equities, while a Latin American might be 30% to real estate and 12.5% to equities.
that is likely to persist as trust companies continue to look for economies of scale. Ultimately, clients benefit from this consolidation in terms of service, expertise and costs. The continuing interest of private equity firms in the fiduciary market is also likely to continue as they see the long-term opportunity and value.
Jersey financial service providers have also been active in refocusing towards the newer growth economies with offices and alliances being opened in the Far East, Latin America, Eastern Europe and elsewhere.
Jersey is in the premier league of regulated jurisdictions and as global regulation and transparency increases it will make us stand out from the crowd. Clients are moving to Jersey as they realise that cost is not the only factor in choosing the jurisdiction. It is the quality of service, experience and expertise of advisers complemented by the robustness of the structure that matters. Jersey continues to attract new trust business to the Island, especially so from international corporates and high net worth individuals and their families, making bespoke solutions for structuring wealth one of the key growth areas. Jersey’s place as a leading international financial centre is a direct result of the knowledge, experience and drive of the Island’s financial services sector. We have a long history of exploration, seeking out new opportunities, industries and markets across the world. Our entrepreneurial spirit, energy and passion are vital to Jersey’s continued success in growing our international appeal and winning business from new markets.
TRUST AND FIDUCIARY: EVOLVING TO ADDRESS REGULATORY CHANGES The biggest challenges that face trust companies are external regulatory or tax pressures. Most trust companies will now be familiar with the changes to European regulations. They will also have had to consider the future implications of US FATCA, the impact of the proposed UK GAAR and possible EU ‘FATCA’ changes. In effect, trust companies constantly have to evaluate the structures that they manage to ensure that they are still fit for purpose. These regulatory changes as well as global macroeconomic trends have led to a consolidation in the market
Clive T. Wright has over 26 years of experience working in finance and joined Kleinwort Benson in January 2012 as Head of Private Wealth Management Offshore, from Deutsche Bank in Jersey, where he was Head and Managing Director of the Private Wealth Management business. Clive joined Deutsche Bank in 2006, initially as Head of Private Banking, having previously worked at Royal Bank of Canada. Clive has a Diploma in Business Studies and is CII Investment qualified.
Adam Moorshead Adam Moorshead is Head of Fund Administration for Kleinwort Benson and has cross jurisdictional responsibility for all aspects of the business line. Adam has over 25 years’ experience within financial services and extensive management experience within the investment fund industry, specialising in client service delivery, business transformation, fund operations and systems. Adam has held and holds a number of Directorships on Investment Companies.
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KNOW THE UNKNOWNS
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SUPERVISION AND REGULATION
Jersey’s robust and responsive regulatory regime By John Harris
In reviewing my contribution to this year’s Jersey ~ First for Finance publication I am tempted to begin with the rather euphoric statement “what a difference a year makes”! I don’t think I can go quite that far however, albeit it is clear to me that much has moved on since I wrote my contribution last year and that a good proportion of developments seen have been positive for Jersey and its finance industry. Some things do not change at all. Jersey can continue to be proud of the continuing successful embrace of international standards of supervision for financial services
and also in the field of Countering Anti-Money Laundering and the Financing of Terrorism (AML/CFT). The last 12 months have seen these standards further consolidated and Jersey has continued to realise progress in embracing new and emerging standards. These have been, or are in the process of being, added to the existing – and growing – body of regulation which forms a very important part of the scene in the aftermath of the financial crisis that began in 2008. I thought it would be useful to review where we are using similar subject areas to last year as this gives context to –
and dimension for – some key specific developments. However, prior to doing that, I would suggest that although the aftermath of the financial crisis is still very much with us, there has been a noticeable shift in both data and sentiment since the end of 2012. This is true both internationally and in particular with the economies of the US, latterly the UK and also Jersey. US and UK economic activity does now seem to be picking up with a certain level of confidence returning to markets, albeit in a continuing low interest rate environment which will inevitably be perpetuated for a good time yet by the actions of central banks through moneCourtesy Danny Evans (Jersey Tourism)
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tary easing. It is beyond my ability to analyse how these challenging conditions should be managed by the political and central bank community but clearly in this environment financial services jurisdictions such as Jersey, which derives much of its economic benefit from high activity levels and related employment within financial services, stands to benefit from its continuation and consolidation. With the tantalising prospect of some improvement in the local financial services economy in mind, it would then be useful to consider those initiatives which are of most importance to the Jersey regulatory environment, most of which began before this year and which continue to develop. These include but are not limited to the following. THE PACE AND SCALE OF REFORMS IN THE BANKING INDUSTRY Here we have moved on from last year in that the Basel III capital and liquidity reforms have now largely been adopted by all relevant key country players, including critically the US. This does not really change the situation for Jersey which had already communicated its clear intent to embrace the Basel III reforms for its own banking entities and the past year has seen further
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progress towards that objective. Nevertheless, it could not be said that banks globally have had a good past 12 months. Much of the problem has revolved around conduct and governance/oversight failures including some very high profile AML/CFT issues for a number of household name banks in the United States. It has not been a restful period for Swiss banks either, again notably in their relationship with the US. Challenges for bank supervisors everywhere have emerged from these developments as well as somewhat sensationalist press reporting of issues. Suffice to say that Jersey is playing its part in ensuring that its banking community adheres to the key objectives of demonstrating prudential stability, good ethical conduct and sufficiency of key controls in AML/CFT practice. The Jersey Financial Services Commission (JFSC) is redoubling its own efforts in this respect to ensure such an outcome. THE ICB (VICKERS) BANKING REFORMS IN THE UK AND THE RECENT PUBLICATION OF THE PARLIAMENTARY COMMITTEE ON BANKING STANDARDS REPORT Both of these key initiatives have continued to play out over the past 12 months. The Vickers Reforms – which will have some consequence for Jersey and its banking model – have reached debating stage in Parliament and
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the fine detail of the implementation of these reforms is expected to emerge shortly. This continues to have significant implications for the local banking model given that the vast majority of liquidity pooled in Jersey and managed by its banks is upstreamed to London, Jersey’s neighbouring major financial centre, to provide for the funding needs of the parent institutions of Jersey based banks. It is unlikely that the bulk of this will be disrupted by Vickers reforms but they could have some significant impact at the margins of the Jersey banking community, particularly for the large UK clearing banks. The requirement is for local Jersey branches (and potentially subsidiaries) of these institutions to demonstrate an ability to meet the criteria for inclusion within the UK ring-fence if considered desirable by Group management. At the time of writing it seems likely that the large clearers will predominantly continue to upstream to the parent bank outside the UK ring-fence but this does not suggest there is no further work to do in terms of securing potential inclusion for Jersey retail operations, not least so as to ensure that Jersey resident clients of these institutions continue to enjoy a similar banking service to that which they presently have access. THE EU’S ALTERNATIVE INVESTMENT FUND MANAGER DIRECTIVE (AIFMD) In this respect, it is indeed credible to suggest that the last year has seen a major shift. This EU inspired regulation aims to bring into oversight the vast majority of very widely defined Alternative Investment Funds and thus has major implications for Jersey, which specialises in this particular area. The Island has needed to secure cooperation agreements with all EU/EEA Member States through the medium of the European Securities Markets Authority (ESMA) in order to continue to offer such products to EU based investors into the future. Initially these will maintain the ability of Jersey promoters to market funds into EU jurisdictions on a private placement basis, i.e. not for distribution to the general public but effectively to professional investors. This is the cornerstone of what the Jersey funds industry wished to secure and I am very pleased to be able to confirm that in May 2013, the relevant process was concluded for such cooperation agreements to be signed between Jersey and the EU/EEA Member States in order for this to be achieved. The Island has gone further than this in that it is now including in the process putting in place of arrangements so that Jersey can go one stage further than a continuing ability to offer private placement products to the European market. This envisages making itself fully ‘passport compliant’ by the current target date of 2015, which, if accepted, would enable the Island to have full
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EU/EEA marketing ability for all investor classes from that date onwards. This is not an automatic process and will require further necessary approvals from EU Member States and relevant institutions. Jersey has chosen to pursue this path in order to give the maximum amount of certainty to its clients and their advisors. FATCA This acronym has become increasingly known within all financial centres and their financial institutions who do business with the US, with US nationals or simply in the US currency. Matters have accelerated over the past year or so with the conclusion of inter-governmental agreements between jurisdictions and the United States in order to give force to the FATCA commitments by domestic institutions within countries that have reached such an agreement with the US. This has moved the focal point of the reporting regime from financial institutions to their host governments by way of these bilateral agree-
ments, albeit the underlying objective of identifying US nationals within such institutions/jurisdictions and effectively certifying to the US authorities that their affairs are in order has not changed. Jersey is in the throes of completing an intergovernmental agreement with the US and it may be that this has been signed by the time that you are reading this publication. In this way the downside of non-compliance with the new FATCA requirements, which would entail potentially significant penalties being applied to assets held within the US or on the operations of the financial institutions operating in the US, can be avoided. Jersey is now well placed to achieve this. However, it is also noticeable how FATCA is fast becoming the standard for other jurisdictions to emulate and in this respect Jersey – and its fellow Crown Dependencies in Guernsey and the Isle of Man – has seen fit to
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vant international authorities such as the IMF and the FATF, the latter through the Council of Europe body Moneyval, to review Jersey’s performance in terms of the standards set for banking, securities, insurance and other relevant financial services regulation, as well as the standards of AML/CFT that prevail in the Island. As ever this embrace of international standards goes hand in hand with a general wish to be a good citizen and a good neighbour to relevant jurisdictions, principally the EU, but also others further afield. Jersey will continue in its efforts to strive for full recognition of this and the respect that it feels it has earned in so doing along the lines of the recent success in the AIFMD field.
enter into a similar type of agreement with the UK. In addition it is voluntarily making further moves towards embracing the new emerging international standards of automatic exchange of information. Jersey does not feel that it has a particular problem in this respect having successfully combated tax evasion as a result of domestic legislation for many years now, but as often in life it is a function of competition. The need for financial services jurisdictions to see their competitors abiding by similar rules and the general desirability of a level playing field has perhaps held back Jersey and the other Crown Dependencies making these commitments in isolation from others in recent years. That position has now changed and it is clear that in Luxembourg, in Switzerland, in other centres renowned for bank secrecy provisions and who have exhibited a general lack of willingness to embrace automatic exchange of information, an era is coming to an end. This makes life rather easier for Jersey and Jersey based providers, in that the operational cost of implementing such agreed reforms to facilitate automatic exchange of information will not therefore unduly penalise Island based businesses if other jurisdictions and their own institutions are being held to the same standard.
tion, but that is the reality. Accordingly Jersey now sees itself well placed for embrace of the changing transparency agenda globally and able to contemplate a future in which its products and services based on genuine expertise, innovative and relevant products, good standards of regulation and well-resourced financial institutions of stature, allied to tax neutrality and transparency, will stand it in good stead. I have listed the main international regulatory developments as they currently stand but this does not mean that I have identified all that may impact upon or are already impacting upon Jersey, nor those that are currently emerging. However, the Island strategy remains the same, which is to ensure that its underlying regulatory environment and regime remain consistent with international norms and standards everywhere. It is also one thing to have such standards and another thing to be able to demonstrate adherence to them. At the time of writing it is quite conceivable that Jersey will shortly be entering into a new round of evaluations to be conducted by rele-
The JFSC remains at the forefront of this effort and the need to import in a proportionate and sensible manner the measures that I have referred to. Getting the balance right between the proper degree of implementation to meet international evaluation standards and ensuring that the pace and change of doing so does not stifle local and commercial activity is no small task. The JFSC has recently had to adjust its own resource base accordingly in order to put the necessary degree of emphasis on its policy work and its international cooperation work. This goes hand in hand with the strategy that I have outlined. The further challenge for the JFSC in the coming years will be to assist the Jersey government and other interested parties in implementing any needed strategic change which arises from events external to the Island as well as a significant strategic review of the future of the Island’s financial services offering that was conducted in the latter part of 2012. This review, conducted with the assistance of the international consultants McKinsey, has suggested a certain number of new work streams which the Island will embrace and in which the JFSC will have a key part to play. For the JFSC, these revolve predominantly around the need to adapt bank licensing policies to reflect a world in which ‘too big to fail’ banks are increasingly no longer
Leaders pose for a family photograph at the G8 Summit, Lough Erne, 2013. Photo: Stefan Rousseau/PA Wire
In the run up to the recent G8 conference which put tax and transparency at its heart, those who took the trouble to genuinely understand the Crown Dependencies’ role in general and Jersey in particular – and their transparency standards – would have realised that many of the things that were being demanded of the Island by G8 were not only already in place but had been for years and in ways major countries such as the UK and US had yet to emulate. There is something of an irony in this as the general publicity would have pointed in a different direcJersey - First for Finance • 37
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desired and on which undue reliance can no longer be placed. This means a more refined banking licensing model for the future and one in which considerable research is currently being conducted. Moreover, notwithstanding the aforementioned AIFMD success, it emerged from this strategic review that the Island’s funds regime, whilst wide in scope and extremely accommodating of many different types of investor types, asset classes and a judicious mix of public and private funds, has become somewhat complex and at times relatively impenetrable for some market based promoters. From this it is clear that some simplification and streamlining of the Jersey funds regime is a desirable objective and early work on this has now started. Over and above these specific challenges, the JFSC has made further efforts in recent years to develop and where appropriate consolidate its international relationships with fellow regulators and other relevant bodies around the world. In 2012 we took this further with the signature of bilateral MoUs with the Reserve Bank of India as well as with the US Federal Deposit Insurance Corporation (FDIC). At the same time the Island’s financial services institutions continue to forge their links with the key markets of the Middle East as well as with other new geographies of interest such as Eastern Europe and potentially in certain African countries where services and products that the Island can offer are seen to be relevant. This may well presage a further round of inter-regulatory cooperation initiatives which the JFSC is ready to embrace. The imprint of recognition that such inter-regulatory relationships could bring is of importance in the Island’s commercial aspirations in any critical new area of wealth management growth in the world economy of tomorrow. As we know, that future world economy will have a different shape and feel than that to which we have become accustomed in Western Europe and the US in recent decades. We need to be outward looking and the Commission certainly understands its need to play its part in that endeavour. In addition – as ever – the JFSC has to concentrate on its day job, authorising, supervising and regrettably where necessary enforcing its regulatory requirements in Jersey. This continues to be achieved with what I hope is a judicious mix of offsite and onsite supervision. By this I mean desk based review as well as visits to individual licence holders focusing on prudential, i.e. strength of balance sheet and liquidity standards in relevant areas. Add to this a strong focus on the conduct of the registered person’s affairs in terms of its own corporate gover-
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nance, business take on standards, monitoring of client risk, remedial problem management as well as strong adherence to the Island’s AML/CFT requirements. We continue to discharge this task with the continuing dedication and professionalism of our supervision staff ably supported by those in our support sectors and complimented by the Company Registry operated by the JFSC. However, in this field as everywhere else things do not stand still. Supervision is increasingly changing its dimension the world over and the trend towards more intrusiveness, a much greater understanding of a particular institution’s business model and overall operating environment are certain key features of this trend. In addition new challenges abound, such as cyber security and the ability of institutions to ensure this is maintained in an increasingly interconnected world. The JFSC recognises the need to develop its own workforce and supervisory tools in order to deliver its share of this new orthodoxy and a good deal of internal work within the organisation is currently focused on this. It demands significant infrastructure and investment commitment and also a willingness, when things do not go well, for the JFSC to deploy its highly skilled and effective enforcement arm in order to address problems and hold those responsible for them to account which in itself underpins the continuing message of the desire for ever higher standards within the Jersey financial community. I continue to be privileged to be the Director General of the organisation which seeks to deliver this set of responsibilities and duties ably supported in the endeavour by our excellent Board of Commissioners. The JFSC remains one of the Island’s principal actors in understanding, addressing and dealing with changes – at times tumultuous – brought about by the severe dislocations from the financial crisis of recent years. We are working in an
evolutionary rather than a revolutionary capacity but the demands of that evolution are nonetheless insistent and rapid. Despite this, we fundamentally believe the JFSC can discharge its responsibilities well and remain in step with its on-going vision of supervisory excellence, a world class registry, credible and effective enforcement capability and the embrace of international standards of regulation. We have maintained that capability through recent years and we are absolutely determined to continue to do so.
John Harris John Harris is the Director General of the Jersey Financial Services Commission. From 2002 to 2006, he held the position of Director - International Finance in the States of Jersey Chief Minister’s Department where he had responsibility for all aspects of the government’s policy on the maintenance and enhancement of Jersey’s position as an international finance centre. From 1998 to 2002 he was Chief Executive Officer for NatWest Offshore with responsibility for offices in Jersey, Guernsey, Isle of Man, Gibraltar, Cayman, Bermuda and the Bahamas. He spent 22 years working for NatWest Bank during which time he held management positions in France, Switzerland and Singapore amongst others. John Harris obtained a BA (Hons) at Exeter University and is a fellow of the Chartered Institute of Bankers.
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COMPLIANCE
Take Five:
Compliance With programmes of regulatory reform and a raft of new regulatory Directives – from Dodd Frank and FATCA to AIFMD – plus a new ‘twin peaks’ regulatory structure in the UK, the number of challenges and the cost of compliance with regulatory requirements have increased. In addition, AML/CFT legislation and asset recovery initiatives are also putting pressure on compliance resources. As Jersey maintains the highest international regulatory standards – renowned for its proactive approach in cooperation with regulators beyond its shores – it is not surprising that the levels of compliance procedures here too are also becoming more complex and demanding. Jersey - First for Finance asked Mathew Beale, Managing Director, Comsure and Malin Nilsson, Director - Regulatory Solutions, Kinetic Partners, what the key challenges are, the risks associated with non-compliance and the current priorities for business and finance today.
1. Do you find it difficult to convince firms that proactive, integrated compliance should be viewed not simply as a costly obligation but rather as constructive sound business practice which ensures the business is safe and cultivates improved quality/ process controls and client satisfaction, as integrity and transparency to investors can help differentiate them from their competitors?
MN: It can vary widely. There are still a few organisations that view compliance as a box ticking exercise, although this is becoming less prevalent as firms are increasingly subject to regulatory enforcement action. In terms of compliance arrangements, most firms are, or want to be, ahead of the regulatory curve and view having effective systems and controls in place as a competitive advantage.
MB: No, however I think it would be fair to say most businesses complain about the increasing cost of doing business. However, these same firms also recognise the need to evolve by learning from the past as well as the continued challenges posed by the evolution of regulation.
The cost/benefit trade-off, however, can be difficult to balance, especially in the current economic climate where cutting costs, while achieving growth, has become essential to both survive and prosper. The controls framework may not always keep up with business development plans, which invariably leads to an increase in the regulatory risk to the firm and senior management. A compliance framework that does not keep pace or align with business strategies is one of the main drivers of regulatory risks in firms we look after. Compliance arrangements and a firm’s compliance culture should be considered as an integral part of a firm’s business strategy and whilst compliance is not quite viewed as a ‘value adding’ function, it is increasingly seen by management as key in order to drive a profitable, robust and reputable business.
The past has shown us all that things go wrong when business models are not based on a sound foundation of a fair treatment of consumers and a strong culture that supports this need as well as the regulatory environment that the firm operates. The future shows that the relentless growth in rules and expectations means that a continual and joined up approach to compliance risk management is needed. Furthermore these firms are starting to see these external changes as being an opportunity to enhance the value-adding aspects of their business through compliance. They see the potential, while recognising the limitations, in their compliance functions helping them in the pursuit of growth. In doing so they will deal with the threats while creating a competitive advantage and improving corporate value and reputation in line with growing stakeholder demands around integrity, accountability and financial stability.
2. With many firms citing the need to minimise the cost of compliance, how important is it to have a proactive approach to the identification of future legislation and addressing potential regulatory risks? MB: The simple answer is very important. Regulatory changes and heightened regulatory scrutiny will affect the manner of production and/or delivery of all financial services products and/or services in Jersey and elsewhere.
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COMPLIANCE Courtesy Danny Evans (Jersey Tourism)
It is fair to say that many companies have significant concerns that regulatory challenges may affect their strategic direction. However, the stakes are high since, without effective management of regulatory risks, any organisation will be on the back foot and reactive, at best, and non-compliant, at worst, with all of the attendant consequences. Companies of all sizes need to determine how regulatory requirements might have an impact on their strategic business objectives and need to understand more about how they can take a systematic, risk-focused approach to managing their compliance efforts. MN: Being proactive is key to achieving compliance with global and local regulatory developments on time and on budget. Starting early is a positive step, yet many regulatory developments provide little clarity until the final stages of drafting and/or implementation, which means being an ‘early adopter’ could work against a firm. Ensuring you have the appropriate legal and regulatory skills on board is key to stay on top of the rate of regulatory change. Addressing potential regulatory risks at the earliest stages allows a proactive and managed compliance approach to be taken and is in the long term much more cost effective. 3. How does Jersey compare with other jurisdictions with regard its level of regulation and professionalism, with experienced regulatory risk specialists holding appropriate certificated qualifications and trained in AML/CFT, compliance and fraud/financial crime prevention? MB: Jersey is second to none in maintaining and developing its financial service professionals. In all regulated sectors the Jersey Financial Services Commission requires professionalism (competence) to be underpinned by qualifications and minimum continuous professional (CPD) requirements. In support of this requirement there are
a large number of business schools, other financial training providers and trade finance groups to ensure there is plenty of on-Island training to support both regulatory and business needs. MN: In short, Jersey compares very well with other jurisdictions, both onshore and offshore. The financial industry in Jersey is highly governed and has a world-class financial services infrastructure. This is overseen by the Jersey Financial Services Commission which grants licenses to all local regulated firms and carries out regular license checks. Jersey also has a highly professional, experienced and knowledgeable workforce and professional training is high on the agenda. All staff working in regulated companies are required to undertake a minimum number of Continual Professional Development (CPD) hours each year and anti-money laundering training is compulsory for all staff. Most senior employees are professionally qualified too. In terms of regulatory risk specialists, there are strict CPD requirements for many professionals with compulsory minimum annual CPD requirements for all TCB/ Funds staff. Local legislation also requires Compliance Officers to be approved by the local regulator and must either hold an appropriate compliance qualification (or other qualification) or be studying towards such a qualification. 4. What do you see as the key compliance challenges and regulatory risks facing firms today – such as an ever changing regulatory landscape which means the compliance function must not only keep up to date but ensure adequate controls are implemented and effectively managed, whilst maintaining day to day operational requirements – and what should they prioritise? MB: The key compliance challenges for all firms stem from the implementation of additional local, cross border rules and the subsequent impact of global regulation as well as the firm’s own risk appetite and drive to improve corporate value and reputation in line with growing stakeholder demands around integrity, accountability and financial stability.
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In meeting these demands the precise design of a compliance function [framework] will always vary for individual firms and whilst there is no ‘one size fits all’ solution, the core considerations in how a compliance framework needs to prioritise and change in order to cope with regulatory change must include considerations of: 1. The role of compliance (including structure and strategy) within the business 2. The interaction of compliance throughout the business ensuring a persuasive ‘culture of compliance’ 3. The implementation of a complete Compliance Monitoring Programme 4. The processing and use of Compliance Management Information including the implementation of appropriate technology 5. Ensuring appropriate resourcing (including people, technology, time and funding) 6. Maintaining education throughout the business 7. Maintaining dialogue, interaction with regulators and other agencies MN: Having sufficient compliance resources, whilst also being a regulatory requirement, is by far the cheaper ‘insurance policy’ against regulatory risks when compared to the monetary and time costs associated when these regulatory risks actually crystallise. In today’s environment, compliance staff need to be technically proficient, appropriately experienced and at senior levels, they also need to carry sufficient weight and gravitas to be able to interact with the business in a manner which ensures practical and compliant outcomes. It is of key importance that the day to day operational compliance tasks do not slip, as they form part of the controls framework for a firm. For some firms, this has become increasingly difficult to manage, for example, where there is a greater reliance on a smaller number of staff. It is however vital to ensure that the ongoing responsibilities imposed under regulatory and AML requirements are adhered to and updated regularly.
In considering the increase in regulatory risk, a viable and effective compliance strategy and associated policies and procedures should be driven by a regulated firms’ board and their risk appetite as well as the business’s regulatory risk profile. Moving forward how regulated firms structure their Governance, Risk and Compliance (GRC) functions to respond to, or preferably pre-empt, these complex challenges, will encompass the range of culture, strategy and people. Not only the GRC function’s composition but also its role and voice within the business and overall risk management framework, should be considered. An effective GRC function is essential to identifying and mitigating risk and protecting the business from regulatory censure and protecting both the firm’s and Jersey’s brand and reputation. MN: The financial services industry has come a long way in the last decade, with significant changes in the last five years in particular. In most firms, compliance strategies, policies and procedures are in line with regulatory requirements and industry best/good practice. One of the biggest risks we see in firms however, is non-compliance with these internal procedures, or inconsistent application of them. Recent action taken by regulators worldwide demonstrates that adherence to internal procedures is viewed as being equally important to adherence with regulatory requirements. Risks can be mitigated through the use of regular independent reviews, internal audits or periodic health checks. The culture of a firm is extremely important when it comes to compliance and hence senior management engagement, and evidencing of such through board minutes and action taken, is a positive step toward reducing regulatory risk and therefore ultimately reducing the cost and impact of non compliance.
A priority is therefore having not only adequate but also appropriate resources. Companies may also look to outsource some of their compliance function or bring in specialists to perform ad hoc compliance projects. This adds value in terms of independent oversight and also creates up to date initiatives introduced by experienced professionals which the company can then incorporate into its controls framework. 5. What are the risks associated with non-compliance for financial service providers and how can their compliance strategies, policies and procedures be further enhanced and enforced? MB: Although it is difficult to quantify the value added by compliance, fines and censure can highlight the potential cost of non-compliance. For example the number of regulatory disciplinary cases initiated by the FSA (now the FCA) has increased over recent years – 66% in 2011 v 58% in 2010 and in 2010/11 the level of fines reached £98.5m. This transition to a tougher approach is further illustrated in February 2013 with fines totalling £101.4m. This amount compared to just £9.2m in February 2012 and represented approximately one-third of £313.4m, the total level of fines in 2012. Outside of the FCA we have also recently witnessed HSBC’s eye watering $1.9 billion fine that was levied by the US authorities. Simply, these fines provide a warning shot to all financial institutions that may be considering operating outside of regulatory restrictions. In Jersey the trends seems to be the same and with a move to introduce a system of regulatory fining in 2013 will only reinforce the regulators bite.
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INTERNATIONAL FINANCE CENTRE
The global reach of
Jersey’s financial services Introduced by Jonathan White, Chairman of Jersey Finance Limited The security and stability Jersey offers as an International Finance Centre (IFC) have proved to be enduring features of our jurisdiction for attracting investment from overseas. The international appeal of Jersey is even more evident as we witness the accelerated growth of so many new markets from the Far East to Latin America. To meet the increasing demand for cross border financial services, Jersey’s finance industry has invested substantially in its offering for new markets, whilst not neglecting the traditional opportunities closer to home in London and the European mainland. Jersey Finance has appointed business development heads in key regions of the world who help to showcase Jersey’s range of financial services and foster government, regulatory and industry contacts. Those market heads, led by the Global Head of Business Development, discuss the growth and range of business undertaken in these key markets.
The global market By Richard Corrigan, Global Head of Business Development
Having developed a strong presence in the Gulf, India and China, we are now exploring opportunities to highlight Jersey’s offering in other markets where we do not have office representation, in particular Russia, Brazil and Africa. We are taking into account the significant wealth creation that is evident in many emerging markets and responding accordingly. Jersey Finance also commissioned detailed studies of the priority markets for the finance industry to help the industry plan its strategy for the future. To develop business in these markets, we engage in fact finding missions to the locations, seek opportunities to meet intermediaries and business influencers and maintain the dialogue with our long established contacts in London. Working together, we build
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cohesive market plans encompassing our government, regulatory and industry members. Meanwhile, in other key regions of the world where we have been marketing Jersey’s financial services for some time, we have established advisory and community of interest groups designed to bring together representatives of the finance industry in Jersey, with local practitioners and other leading commercial representatives in the region, to further enhance our ‘market strategy’.
Europe and Russia By Gary Hales, Head of Business Development, Europe and Russia
International cross border work generated from the UK and mature European markets continues to create significant flows of work for Jersey’s finance industry.
We continue to host regular high profile conferences in London to showcase our funds and private client services and Jersey Finance is working closely with UK trade associations to raise Jersey’s profile. We are engaged throughout the year in meetings with key intermediaries, such as the country desks of major accountancy firms and ‘Magic Circle’ law firms, to ensure that they are aware of the breadth and depth of services we have to offer. In Russia and the wider CIS region, the platform of stability, sound regulation and international recognition are key features sought when investing overseas. Jersey’s role as a partner jurisdiction in wealth management business in Russia has been evident for some time. The Jersey trust vehicle has proved a suitable structure to meet these objectives, while also being employed in succession planning and philanthropic activities. The introduction of Jersey foundations onto the statute in 2009 has provided a further boost to attracting business from Russia where there is less familiarity with the Common Law based trust concept. Alongside private client activity, the corporate services
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provided by Jersey firms have also resonated well. Listings work through the use of Jersey company vehicles continues to generate interest and is an effective route for institutions seeking to list on global stock exchanges.
The Gulf and India By Sean Costello, Head of Business Development, GCC and India
The opening of the Jersey Finance representative office in Abu Dhabi in early 2011 was a consolidation of Jersey’s presence in the region. The centre acts as a local hub to help communicate the breadth and depth of Jersey’s financial services and capabilities. There has also been an increase in the number of Jersey based trust companies and finance houses which have opened offices in the Gulf region. This physical presence is complemented by the recent strengthening of regulatory links between Jersey, the UAE and Qatar. Such agreements between regulators make it easier and more straightforward to conduct business between Jersey and the GCC and will therefore play an important part in encouraging increasing business flows between the two locations.
whom have existing links to Britain through their business interests, family connections or perhaps as a result of being educated in the UK, perceive Britain as a positive business environment and they take further reassurance from the close links Jersey maintains with the City of London. Overall, the wealth management landscape in India is both complex and evolving, requiring an in depth understanding of the cultural value systems that govern the financial decision-making process, which is why Jersey has invested so much time in forming strong longterm bonds with the country.
Hong Kong and Greater China By Zhaoan Li, Head of Business Development, North Asia
Business in China continues to expand, most notably in corporate work but at the same time a number of Jersey based businesses are showing their commitment to the region by opening offices. Jersey’s private wealth structures, trusts, foundations
and limited partnerships, offer Chinese HNWIs efficiencies for the management of the holding of investments, and estate and succession planning. Additionally, Jersey remains well placed to provide the investment vehicles to conduit international capital into China for the infrastructure projects it undertakes. It possesses similar company entities to enable Chinese businesses to expand internationally and access capital on foreign exchanges, including the London Stock Exchange. As at March 2013, one quarter of Chinese companies listed on London’s stock exchange were incorporated in Jersey. It is now four years since Jersey Finance opened its first international office in Hong Kong to cover both mainland China and Hong Kong markets, an essential move to enhance the appreciation of Jersey’s role as a facilitator of international capital into western markets and in order to highlight the financial expertise available from Jersey providers. Since then Jersey companies have earned approval to be listed on the Hong Kong Stock Exchange and two of the world’s major commodity giants have used Jersey vehicles to list on the HK Exchange, with further capital markets business of this type in the pipeline. The next planned move for Jersey will be to open an office in Shanghai as we continue to develop business across the entire region.
One of the key selling points for Jersey is a dedication to a tailored offering, and the flexibility to appeal to the region’s unique cultural and financial requirements. There is a demand for trusts, property holding structures and foundations and the Island already boasts an expanding range of Shariah-compliant financial products that Jersey Finance is working hard to promote in the area, and these include: Islamic asset management and fund domiciliation, Special Purpose Vehicles (SPVs), Sukuk structures and Islamic private wealth management. In India, the financial crisis has created considerable uncertainty, even though the country continues to enjoy strong economic growth. It is an environment which has reinforced to many Indians the importance of looking carefully at how they manage their own and their family’s wealth – both domestically and internationally – with an emphasis on making diversity a feature of their wealth strategy and drawing on the expertise and experience of a safe IFC such as Jersey. For instance when considering the merits of Jersey, non-resident Indians, many of
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Jersey Finance 2013 Roundtable Venue: Jersey Finance Limited, Sir Walter Raleigh House Date:14th June 2013 Participants: (from left to right) John Harris, Director General, Jersey Financial Services Commission Richard Ingle, Vice President of Jersey Bankers Association Geoff Cook, Chief Executive, Jersey Finance John Davey, CEO, Brooks Macdonald Naomi Rive, Partner, Head of Jersey Private Client & Trusts Practice Group, Appleby Global Joe Moynihan, Director of Financial Services, States of Jersey Phil Thornton, author & journalist (moderator)
All photos: Chris George
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Phil Thornton: Two thousand and thirteen will be a year of challenges and opportunities. The recovery is anaemic in our half of the world. Five years after the collapse of Lehman Bros there’s still concern over the stability of the financial system. We’ve got the eurozone issue, which comes back every time you think it’s gone away. And then we have the whole financial regulation issue and the debate about tax avoidance. But, on the plus side, there’s very strong growth in the emerging economies, stock markets are pretty good and there is a growing amount of wealth looking for new investment opportunities. I would like to get your views on the economy, financial markets and tax regulation, and then focus on trusts, foundations and funds. I would like to ask Geoff to begin, and then get a view from everyone else’s perspective.
Geoff Cook: We felt the chilling effect of the crisis, like most centres, but I think we came through that relatively well, and the durability and the resilience of Jersey shone through. We’re actually back to quite reasonable growth. While there is a significant slowdown in Europe, the US is pulling through more now. But we’ve seen growth in lots of other parts of the world. For many years we’ve been active in the Middle East particularly over the last five years, and much more active in the growth markets, like Asia. We’ve seen our bank deposits growing again, some new banking entrants arrive in the jurisdiction. We have seen our funds resume a growth path and they’re now very near their pre-crisis highs in terms of stocks. Net asset values have recovered as well: just a year ago they were about £180 billion and they’re about £205 billion at the moment. Because we’re quite a diversified
centre with clients in over 200 countries we are feeling the effects of the slow growth environment in Europe in particular, but we’re picking up some of the upside of the growth in the more dynamic markets around the world. Richard Ingle: There was an initial perception after the crisis that there’d be a reversion back to the way it used to be but I think most now accept that this isn’t going to be the case – there’s a new normal. The challenge for Jersey is to ensure we are equipped to handle what that new normal looks like. The first highlight for me is the stability of banking deposits on the Island over the last four or five years despite the prolonged weakness. It is encouraging that over the last two quarters we’ve seen the level of deposits increase to about £155 billion. That can be attributed to the deep roots of the finance industry in
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we wouldn’t be affected by that. But other streams are working. Paradoxically, we may benefit from a decline phase, because we will be one of the survivors that people will consolidate to. We’ve got to be very sharp about reading market trends and developing our proposition, developing new products. A good example of that would be alternative means of financing. People like private equity and more innovative forms of financing to replace the shortage of credit. So providing we’re keeping step with the major trends in the world, even amongst the adversity, there’s still growth opportunities. It’s about being agile enough and fleet of foot enough to grasp it.
Jersey. It’s an industry that’s been established now for over 50 years, and I think that’s certainly reassured depositors who’ve been here a long time, but also provides some reassurance to new money coming into the Island, that it’s been safeguarded in a jurisdiction with a long history of being stable and well-regulated. An increase in global trade, labour mobility, and capital flows combined with a shift of economic power from West to East are all positive signals for an international finance centre like Jersey. It makes perfect sense for the Island to place its strategic focus on those emerging economies that are going to benefit from all those factors. John Davey: I think we underplay that durability and that sustainability. If you look around the world, it was a brutal flushing of the system in 2008, and not a lot of dead bodies washed up in this area of the world. The bodies washed up elsewhere, generally. This is testament to the fact that good business is done here by good people in a well regulated location. How did people respond in the five years in our bit of the industry? They worked harder. They’ve been more creative. There has been some consolidation. They have realised they have to refocus on adding value to clients. Whether that’s from a legal perspective or from an accountancy perspective or from a banking perspective, you have to add value to differentiate yourself. As a result people are fitter and healthier and sharper. I’m more concerned about the long term direction of the world. The Channel Islands have had a competitive advantage for a number of years and financial services have had a competitive advantage. What if there is a structural decline of financial services and, within that, our ability to add value is constrained? That’s an issue for Jersey’s government. Joe Moynihan: I think that we would all agree with John’s comments about structural decline within the financial
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services industry, and the potential impact on Jersey. We probably have to accept that we have limited influence on structural change within the broader financial services industry, but from a government’s point of view we aim to ensure that we’re seen as an enabler for the industry and potential new entrants into Jersey. We see our role very much as trying to make sure the environment is maintained to support existing business and business into the future. John Harris: I think there will be a decline in conventional financial services. Global banking is shrinking. It will shrink some more because the asset books just got too big, the leverage has got too big and regulation is going to make it do that. It will be unwise for us to think
Naomi Rive: The private client industry is an interesting model because we faced challenges to the nature of our business somewhat earlier than the rest of the financial services industry in Jersey. We saw the writing on the wall with the tax changes in the UK over the past 10 years and at quite an early stage industry had the foresight to look to develop business in emerging markets. As a result of that, and the fact that we have diversified our business by introducing new structures, many law firms and trust companies have been quite resilient in the midst of the financial crisis. This has also been contributed to by solid regulation, an excellent judiciary, a good body of professionals and political stability. We are so lucky to have this armoury when we needed to go out and sell our services to new jurisdictions. It’s to Jersey’s testament that we were able to change and we’re clearly going to have to continue to do so in years to come.
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issues is in relation to bringing new business into the Island from emerging jurisdictions. Often in these jurisdictions source of funds is harder to establish. On these occasions we have had to enter into dialogue with the regulator and we’ve all been on a slight learning curve. But what we have found more recently is that clients from jurisdictions such as Russia want to get their money into a well regulated jurisdiction and are willing to work with us to satisfy the requirements of the regulator. The clients know that when they have structures in Jersey it gives them a gateway to other jurisdictions.
PT: I want to move on to regulation so can I ask John how you are dealing with the multiple regulation pressures that are coming from around the world? Are you differentiating yourself in some way? You’ve got to work within and deal with the situation? JH: I think the scale of the response to the crisis has been so overwhelming, that a small place like Jersey has been, unfortunately, condemned to be more reactive than it might otherwise like to have been. The particular issue has been maintaining access to markets. If we look at the big pieces of regulation outside the Island in recent years like the directive in Europe for fund management, or the Vickers Reforms of the UK banking sector, Jersey has to react to them, analyse what they mean for the sector here, try and adapt them to local circumstance if only to maintain market access for our practitioners. I think a lot of the regulatory effort and energy over the last four or five years has been about staying in the game and trying to make sure we are able to do so for the future. If things get a bit calmer, Jersey’s traditional advantage of being fleet of foot and able to adapt regulation a bit more sensitively to coming trends, rather than being in the face of this great big international juggernaut, will reassert itself.
some of these quite complex and wieldy initiatives is proportionate to the business landscape. JH: The problem is that most international regulatory initiatives in recent years have been enacted almost solely looking at the question of risk and not at all in terms of competitiveness or cost benefit. If they had taken a little more time, the eventual result and outcome might have been better. That disproportionately puts a centre like Jersey, which is a jurisdiction of choice for most financial services institutions, at a disadvantage. So we have to work all the harder to mitigate that particular trend. NR: I think we’ve been relatively lucky the private client side to be honest. Where we have experienced regulatory
JD: Some of the regulatory response is sensible and some of it is a knee jerk reaction to a crisis. You can see it in the UK with the attitude to the banks and financial services generally, which has been hijacked by politicians, even though it’s one of the UK’s best assets. I do wonder at what point the pendulum stops swinging to way beyond where it needs to be. That’s not an argument against regulation. I think regulation is a good thing, and I think, once again, Jersey has made the best of circumstances. GC: I think this jurisdiction is very adept at absorbing and implementing regulation. It’s become accustomed to meeting international standards and performing at or above requirement. The major thing I look at is whether it’s going to harm our market access. There’s always a temptation for political influence, particularly when parliaments and legislatures are looking at framing proposals – and this is very common in Europe – to
RI: The avalanche of international financial regulation that stems from the crisis affects the regulator and the regulated alike. Banks are at the forefront of that. From a Jersey perspective, John is right. It’s been a very reactional approach, and we can’t do anything other than try and deal with the avalanche. It creates a lot of challenges, particularly because there’re so many different interested parties trying to do something at the same time. What helps us in Jersey is the partnership approach and the open communication we have with the regulator. That certainly helps to ensure that the local response to
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diction otherwise. As a result they haven’t got anything to fear from a move to greater transparency and automatic exchange of information. But, on the other hand, they have got a right to privacy, and someone has got to stand up and ensure that taxpayers’ rights are safeguarded and the importance of lawyer/client confidentiality isn’t undermined. For this reason I think there is a good case for saying we should have a voice in the debate.
thread some protectionist tendencies through them and to provide some means of restricting market access. I think that’s the greatest danger. A lot depends on what the motivation for it is and what’s behind it. JM: At government level we are trying to build relationships with key parties in important jurisdictions, so that at least we have access to be able to make or build our case. Through the Channel Island’s Brussels office, we have a much better feel for what’s going on and access to some of the key influencers from a European perspective. We’ve got to try to win more friends and influence more people as to the validity and quality of the industry here. PT: We have the G8 debate going on at the moment. From the government side, what’s your view about what level the debate is on tax avoidance globally led by the UK at the moment? JM: There is a huge amount of pressure being exerted around the G8 and we are getting caught up in a lot of things that have nothing to do with us. David Cameron talked about getting our ‘houses in order’ for example on beneficial ownership where clearly we’re miles ahead of the UK and other jurisdictions even larger than the UK. So we don’t necessarily think we have anything to be over concerned about in this respect. In his letter to the Chief Ministers and Presidents, he talked about the scourge of tax evasion and aggressive tax avoidance. Well, tax evasion has been a crime in this jurisdiction since the late 1990s, so we don’t have an issue with that. We’re not interested in and do not need those engaged in tax evasion. And we don’t really want to be involved in aggressive tax planning. So if you look at big debate subjects, we don’t necessarily think it should be of any concern to us. In fact, if they can establish a global standard on these matters, we should have little to fear.
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JD: My view, and I mean it in the nicest of ways, is that we’re playing by the gentlemanly rules. I don’t think they are. I think they are playing dirty politics, and we’re the little schoolboy in the yard who’s easy to beat up. I think we should turn the game completely. I think it’s intellectually and morally bankrupt, most of their position, factually incorrect, and we could take more of an aggressive stance on this from the position of where we are, which is actually in a much better place than most of them. NR: I’ve got mixed feelings about whether Jersey should bide its time or lead the way in relation to these things. The vast majority of our clients are already compliant and wouldn’t have survived in such a well regulated juris-
RI: As an institution banks are fighting hard to restore their reputations in the eye of the public. There’s no desire in any financial institution, particularly banks, to be seen to be harbouring tax evaders. So client probity is as important for the institution as it is for the jurisdiction. It’s important for us that we have customers that demonstrate full probity. PT: I’m going to move onto the issue of the stronger growth in the southern hemisphere and the amount of wealth looking for places to come to, whether it’s China, the Gulf, Africa, Russia and so on. So from a Jersey-wide perspective, what’s the strategy? GC: The strategy is to take our proposition to those growth markets, and because we’re experts in cross border transactions, we can help people operate with that, whether that’s wealth management, asset protection, family succession, or cross border investment taking surplus capital from one part of the world, taking it to another and investing it. The macro trends in the
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world are helping us, because of the huge growth in south/south trade and the economic power shift and because we committed to those markets some years ago. We opened an office in Hong Kong some years ago. We’re in Abu Dhabi. We’re in Mumbai. We’re in Delhi. We’re going to open more overseas distribution offices. We’re having a concerted market entry strategy into Africa in the second half of this year and the first half of 2014. And we will probably be opening satellite representative offices in Shanghai. We’re also looking at Moscow as an opportunity. We recognised that trend earlier than many of our competitors and are participating now in that growth story. NR: All the factors that have contributed to the success of our industry so far are equally important to clients in the emerging jurisdictions. Whether it is a wealthy Russian entrepreneur or a Chinese businessman looking to establish a new structure for instance, both are going to be looking for a jurisdiction that’s politically and economically stable. They will also want robustness and confidentiality along with a high quality of service. Many clients will also want to be able to remain involved with the structures moving forwards and the ability to do this will be important to them. That doesn’t necessarily mean they want to retain control in a way that can be perceived as negative, but they do want to work with us to protect and grow their wealth.
RI: Banks in Jersey, predominantly international banks, often have offices or representation in the parts of the world where Jersey Finance has established representative offices. It’s useful because we can use our local network to do the selling story for the institution. That combination is powerful, in terms of trying to capture business for the jurisdiction. JM: There is obviously a role for government to support the efforts of the industry in the different jurisdictions. The Chief Minister was in UAE about a month ago, and working with Jersey Finance to meet the right people at a diplomatic level. He’s going to China and Hong Kong next month, and again that is building on business opportunities that have been successfully developed. So politically, government would say if Jersey Finance and the industry needs support, we’re available to provide that support. JH: There is a risk management element to these markets, which you can’t expect your firms to have a view on if you don’t have a view on it yourself. If the industry wants to go to these places, the regulator has to go there too and forge relationships with counterpart regulators to facilitate the conditions on the ground for Jersey practitioners. GC: The regulatory relationship between the respective
regulators is extremely important to our ability to perform commercially. The government alignment is extremely important too, because you want treaties or MoUs or some kind of official sanction and blessing for your activity and that’s quite important in some countries. Particularly in the Middle East, where you’ve still got government wrapped up with monarchy, the approval of the authorities and the blessing of the authorities is crucial to doing business. PT: Now that Jersey has the green light from ESMA to market its funds in Europe through the AIFMD I would like to ask what new developments are planned? JH: It’s one of life’s great ironies that the European Union has just got around to regulating hedge funds and private equity funds that we have been regulating for 25 years in Jersey. So when this directive came in, the substance was not difficult to comply with. Jersey and Guernsey are in business to comply with the directive from July 2013. They are well placed for the follow-up pieces that have to be put in place, which actually would allow for almost universal distribution of Jersey funds across the European Union from 2015 onwards, which is a huge prize, I don’t think there’s any issue about whether or not we can meet the standards, because we more than meet them. It’s about whether or not they take the veil from their eyes and are prepared to recog-
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nise that and are prepared to deal with the competitive consequences. JM: I think that particular case is an example of the strength of the jurisdiction, because the work by regulator, government and industry, on this particular project, was phenomenal. I had feedback from people in industry saying there are very few places, internationally, where you would get such input and collaboration. It was fantastic. GC: The industry feels very bullish because we can offer the best of both worlds. If you want to be active in Europe, we’ve got security and the ability to operate for a period of years, and plans to launch the supporting capability beyond that. If you want to operate in the rest of the world, and you don’t want the weight of substance behind the regulation that comes with operating in the EU, then you can operate on the model we’ve already got. So I think it makes us attractive both to EU fund houses but to others as well. What the regulator has secured on our behalf is a great achievement and it allows us to face the future with some confidence.
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PT: One key strength of Jersey is its trust offer. As a former law student I was fascinated by this idea that someone would hand their money in perpetuity over to someone else for the benefit of a third party. While this works in common law jurisdictions, how is it seen in the civil law countries where you also promote Jersey’s wealth management offering? NR: I think it’s fair to say the division between legal and equitable ownership, on which trusts are based, is not an
easy concept for anyone to grasp. But that said, the common law trust is the most tried and tested of wealth management products, and for that reason, many clients from civil law jurisdictions have been willing to put their faith in trusts; relying upon the extensive body of case law and statute that exists in the various offshore jurisdictions. Where trusts have limitations though is that in many civil law jurisdictions they’re not actually recognised, and therefore not enforced. Even if a client from a civil law jurisdiction wants to go for a trust, if it’s not
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PT: I want to ask about wealth management. I was interested to see the awards Jersey has won. Are you as well placed as the awards say and are you ready for whatever is going to face us over the next five-year period?
going to be upheld in their country of residence, it’s not the right thing to do for them, especially if they have got assets there. JH: Jersey is a world leader in trusts because it enacted trust legislation first. The challenge is getting the civil law jurisdictions to understand it. Because they don’t understand the concept, they inherently think it is used to distance people from liabilities for taxation in particular. So you can explain what a trust actually delivers and where it’s founded in law but you can also add that we regulate and supervise the providers of trusts - the trustees. If their concern is merely about access to information, which it usually is, that is catered for in this jurisdiction. Basic law imposes obligations to know who you’re dealing with. It’s the strongest model anywhere. PT: One particular innovation in Jersey has been the establishment of foundations. Last month it was announced that the number registered in Jersey has broken the 200 barrier, fewer than four years since their introduction. What has prompted this growth? NR: Foundations are highly attractive. They combine the flexibility of Jersey law trusts with the certainty and familiarity of the corporate structure. This combination has proved of great interest to clients from many of the civil law jurisdictions that we’re increasingly doing business with. Entrepreneurial clients from common law jurisdictions are looking at foundations as well. They like the fact that foundations hold assets in their own name, and that founders can retain a degree of control and involvement in the structure moving forward. It’s also interesting that foundations are not just being used for orphan structuring. We are also seeing foundations being used for substantive wealth planning and some philanthropy. People are putting their confidence and their assets into them and I think they’re definitely here to stay.
Also just like the trusts law, our foundations law is recognised and being replicated in many jurisdictions. GC: It’s massively helpful to us when you go into countries that aren’t familiar with common law constructs. In the Middle East you might well end up with the solution being a trust, but it helps you have an unbiased conversation so you can present different planning opportunities and be client driven. That’s a very powerful situation for us to be in - and it’s an unusual situation for us to be in. It’s helped us with Asian and Middle Eastern and East European clients as they are not so familiar with the common law system. One of the great attractions is the rule of law and the judiciary and the certainty or predictability over judgements. That’s a great inherent feature of common law. But I think it has a bit of a halo effect on foundations as well.
JD: The international wealth management business is in pretty good shape in Jersey, and maybe it’s because the gene pool is quite big, in terms of lots of different companies who do business through here. The Channel Islands have always been at the forefront of wealth management. Jersey has always been well advanced in thinking and quite innovative. If you go to any finance centre internationally, you’re going to find Jersey people in most of those businesses, because people come to Jersey to pinch staff, in a nice way. And then a few years later you’ll see that financial consulting model being exported. It’s been innovated here and it’s exported to other locations. We don’t see our competitors as the other local wealth manager; we see our competitors as Goldman Sachs and Morgan Stanley. JM: One of the strengths of the jurisdiction is that people who are developing businesses invariably know more about the overall industry than just their own ‘patch’. So, if a banker is in Dubai trying to do business, he will know who to introduce on the investment side and on the trust side. When you’re working internationally, it’s firstly about selling the Jersey brand, as opposed to your sector. The industry is so interconnected. There’s good business coming in to the private client world that’s going to help banks, it’s going to help the lawyers and other service providers. JH: That’s a really important point, because you hear people in Asia saying they need a BVI. What they’re saying is they need a company incorporated in the British Virgin Islands. That’s (the uniproduct?) solution BVI can offer the world. They don’t say ‘I need a Jersey’. But because there are a really broad range of financial services available from any one provider, or a series of different providers in Jersey, that is a strength. It means the marketing is that much more demanding. But that’s a blessing and a curse – it’s more of a blessing than a curse. PT: The 2012 Jersey Finance annual review talked about a fourth pillar being capital markets and then you also talked about insurance. But you didn’t develop it fully. GC: For us the capital market side is about people valuing the Jersey company offering, because it’s respected and recognised to be a place for major exchanges to raise investment capital. We have about £150 billion in
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Jersey companies on nine exchanges around the world. We’ve seen pick-ups in demand from Asia in particular, where Eastern capital is looking for investment opportunities in Europe. We’ve seen an interest in raising the capital to take to the new growth economies to help them develop their infrastructure. And whilst it isn’t by any means the largest of our areas of activity, it’s got quite high growth potential. JD: I would say it’s real high margin and value. Twenty years ago the offshore finance centres were at the bottom of the value chain, so a City law firm would come up with a project, and hire local lawyers. The City firm takes a massive fee and local lawyers take a small fee. Turning that value chain on its head is where the future is, and capital markets is an enormous opportunity. Interestingly, the opportunity is also for the local economy. For years I have felt what is missing in the local economy is local capital markets. There’s an overlap between the international finance world and local capital markets, which could be very healthy for Jersey as an economy – unrelated to financial services. But the bridge between those two is missing. Only the government can provide that bridge. If you’re going to float a local company, raise money for a local start up business, or create a new opportunity here, it needs capital, a smart person who understands capital markets, a smart accountant who understands capital markets, and a company secretary who understands capital markets. It’s really high value stuff.
NR: Jersey certainly needs to continue to get out there and promote its offering rather than rely upon the usual flows of business. For me this has really changed the nature of the work I do. For instance, rather than simply being instructed by English lawyers to ‘Jersify’ documents we have a lot more clients from the emerging jurisdictions coming directly to us to talk about their global wealth planning needs. Often there is a UK connection and it’s great to be able to instruct UK contacts to help
with that particular aspect. This ability to reciprocate is always much appreciated and the ready access to highly qualified advisers in London is one of the things we haven’t really touched upon. Proximity to London is a really big selling point of Jersey. At the moment the relationship may be going through difficult times, but many people put their confidence in the Channel Islands partly because of our proximity and access to the services in the City. GC: Our relationship with the City is hugely important. But it’s not only important to us – it’s actually important to the City. We’re a harvester of international value from all over the world. We’ve just completed a study with Capital Economics on our economic relationship with the UK. It shows we support 180,000 jobs in the UK through the financial service sector and make a net contribution to the UK Exchequer in the order of £2.3 billion a year. So we are a very big provider of business to the City but it’s a reciprocal and mutually interdependent relationship. We’re very reliant on their architecture – the stock exchanges, money markets, parent banks and partnerships with the legal practices working on cross border families and wealth structuring. JM: This is a credible piece of work which highlights the value that we give to the UK. It will provide an opportunity at a policy level for senior people within the Civil Service to talk to their counterparts in Treasury and other places, to try and get that message across. It will also enable politicians to provide solid, research backed
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evidence in discussions and dispel some of the myths and untruths about Jersey. PT: Looking forward to when the rich world finally reaches the sunlit uplands of recovery, what opportunities are there for Jersey to grow and where will that growth come from, and what needs to happen to make sure Jersey gets the full benefit as an international finance centre? RI: There will be a recovery but it won’t be a return to the days of old. At the moment the institutions I represent are running faster just to stay on the same spot. Once there is some sort of recovery and as interest rates start to rise, certainly for banks, you’ll see quite a rapid return to some decent performance. The issue is what is going to make Jersey different. I think we are well positioned in the markets that we’re looking at. That will place the jurisdiction in a good position. But there’s still quite a bit of work to do to capitalise on that. NR: We’ve certainly faced our fair share of challenges with increased pressure to comply with international standards and the shift of wealth to the East, but those challenges present an opportunity for well-regulated and transparent jurisdictions to really show their strengths. If our industry is going to take advantage of these opportunities however we have to stay one step, or 10 steps, ahead of the game. If we manage that then I believe we will see some really good quality work coming into the Island in the years to come. I’m currently dealing with some really
interesting structuring for some fantastic high net worth, multicultural clients, and it’s great to be involved with. Quality over quantity must surely be our objective. JD: I’m more concerned about the long-term structured client global financial services and the game afoot with global politicians, which is out of our control. I think there’ll be some really big winners and losers. There’s no middle ground any more. Jersey has got everything there to be a massive winner but the question is, how will those cards get played over time. We’re in a much better place than we would have been 10 years or even five years ago. Out of a crisis comes creative destruction, so no doubt we will all be fitter and we will all be smarter and we will all work harder and add more value, so I think it’s healthy in that sense. In terms of bringing all those cards together, Jersey has the best opportunity. JM: There are going to be challenges, I’ve absolutely no doubt about that, and there will be a lot of challenges that we can’t do anything about. But, at the moment we have a government that’s clearly trying to enable the industry to survive and grow. One of the key things which we probably haven’t highlighted enough is the skill sets and the professionalism within the industry. The broad range of people that we have, the market knowledge that they have and their ability to deliver, I think, is probably a bit special for a place of our size. JH: I think we can worry too much about the overall size of the global financial services sector, because small
places like Jersey don’t need huge market share. What we need to do is to improve our performance compared to others. Jersey has shown that it incubates new types of products and structures for the financial services world. And I really don’t see any reason why that should change. Banks are not going to be providing capital or lending capabilities in the same way that they used to. So somebody’s got to fill that void. There’s going to be a need for collateral. There’s a fantastic opportunity to put together capital to play in that space in one sort of Jersey product or another. As a regulator, I think it would be nice if we could fade into the background a little bit, rather than be at the front of everybody’s consciousness. I feel we are getting to the turning point in terms of this whole critical wave of all the world’s ills. GC: I feel quite optimistic. We’ve got a few storm clouds gathering from time to time but we have reasons to be cheerful because our traditional value is coupled with our modernity. So the things that made it strong historically – a long term political stability, a stable tax system, the largest pool of qualified expertise in our kind of world – means there is a massive amount going for us as a leading jurisdiction in the Global Financial Centres Index. But the really great news is that those attributes appeal to these new growth markets. So if you combine those traditional strengths that have become valued much more because of global instability, with the growth potential in the new developing countries, then it’s a very powerful combination. That’s why I feel pretty optimistic about the future.
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TRUSTS Courtesy Chris George
Protecting Jersey trusts By Alan Binnington
At a recent international trust and private client conference, a leading US private client lawyer told the audience that although the climate remains challenging for international trust and private wealth management firms, Jersey will continue to be a market leader because of its innovative approach to product development, its fiscal and political stability and its willingness to be transparent and open with tax authorities around the world. In terms of innovation, Jersey’s Trust Law, first enacted in 1984, has been used as model by a number other international finance centres. It is subject to a continuous process of review by industry experts, the most recent amendment coming into force on 2 November 2012. Previous amendments have introduced concepts such as non-charitable purpose trusts, clarified the effectiveness of settlor reserved powers and introduced what have become known as ‘firewall’ provisions, designed to protect Jersey trusts from interference by foreign courts or foreign legislation. The latest set of amendments strengthen those firewall provisions by ensuring that the effectiveness of a foreign court order purporting to vary a Jersey trust will be decided in accordance with Jersey law. To the extent that it is inconsistent with Jersey law it will not only be unenforceable but will not be given effect by the Jersey courts. This amendment has particular importance in relation to divorce proceedings, where foreign courts have purported to vary the terms of Jersey trusts, often without considering the interests of those beneficiaries who are not party to the divorce proceedings. A further amendment has introduced a definition of what constitutes a valid ‘purpose’ in relation to nonJersey - First for Finance • 55
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TRUSTS Courtesy Chris George
charitable purpose trusts. The definition makes clear that a purpose need not confer a benefit on a person but may extend to the mere acquisition, holding, ownership, management or disposal of property. This is particularly important where such trusts are created simply in order to hold the shares in a company, for example where that company is to act as the trustee of a family trust. Given Jersey’s fiscal and political stability and its depth and breadth of experience in the administration of private wealth structures, it is perhaps not surprising that considerable interest has been shown in the use of Jersey trust structures by clients from the emerging markets. Much of the wealth created in those jurisdictions is first generation wealth where entrepreneurs have built up successful businesses and wish to ensure a smooth transition of the business to the next generation on their demise.For such clients, the possible loss of control of the business if it is placed into trust may well be an issue. Fortunately, Jersey’s Trust Law enables powers to be reserved to the settlor without affecting the validity of the trust and the use of settlor reserved powers is becoming increasingly popular. The use of a Jersey foundation may also provide a solution given the ability of the founder to reserve the powers over the administration of the foundation’s assets. The foundation has the advantage of being a distinct legal entity which is attractive for families who may be unfamiliar with the concept of a trust. Although the reserving of powers to settlors or founders may be popular, one must sound a note of caution in relation to their use – particularly if the powers reserved are particularly wide. The more powers that are reserved to the settlor of a trust, the easier it becomes to argue that he or she never really gave away the assets and this may be of significance in relation to matters such as taxation or inheritance. In addition, both the trustees of a trust and the council members of a foundation have ultimate responsibility for the assets in the structure, whilst anti-money laundering legislation requires them to have an understanding of the nature of the transactions being carried out by underlying entities. Mention was made by the US lawyer of Jersey’s willingness to be open and transparent with tax authorities around the world. Jersey has always endeavoured to ensure that it meets international standards in regulation and information exchange. In terms of regulation it was one of the first international finance centres to regulate its trust industry and it is a joint vice chair of the OECD’s Peer Review Group, which reviews the global implementation of standards of transparency and exchange of information for tax purposes.
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TRUSTS
Jersey is of course keen to ensure compliance with international standards in terms of information exchange but it also recognises that confidentiality is a duty that must be respected and a proper balance has to be struck between disclosure and confidentiality. Unfortunately the need of governments to repay massive financial deficits has on occasion led them to champion disclosure at the expense of the protection of rights to privacy. Whilst it is clear that automatic exchange of information for tax purposes is likely to become the new norm internationally, one should not lose sight of the fact that for many people living in countries governed by despotic regimes the confidentiality of oneâ&#x20AC;&#x2122;s private information may on occasions even be a matter of life and death. It is also important that there is a level playing field in terms of automatic information exchange and that it becomes a global standard, not merely an initiative directed at the international finance centres. As the centres of wealth creation shift from the West to the Far East, there is a need to have available structures suited to the differing needs of clients from the emerging markets. However having structures available is not enough: clients expect experienced administrators, a comprehensive legal framework with a respected judicial system, political and fiscal stability and ease of access to major financial centres. With its long history as an international finance centre, the Island scores highly on each of these points and, whilst we are living in challenging times, Jersey is well set to serve the needs of its clients in the future.
Alan Binnington Alan Binnington is currently the President of the Jersey Association of Trust Companies (JATCo) and is a Private Client Director of RBC Wealth Managementâ&#x20AC;&#x2122;s Fiduciary Services business. Based in Jersey, he specialises in establishing fiduciary structures for high net worth individuals and their families. He studied law at Cambridge, following which he qualified as an English barrister. On his return to Jersey, he qualified as a Jersey Advocate in 1984 and was a Partner in the Jersey Law firm Mourant from 1985 to 2009, specialising for many years in commercial litigation. He joined RBC in 2009. alan.binnington@rbc.com.
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FOUNDATIONS
Jersey’s flexible foundation By Julian Hayden
A Jersey foundation can be tailored to the founder’s precise wishes, giving the founder the greatest possible freedom of choice. This flexibility requires a clear understanding by planners of their client’s requirements to design a structure that is robust and allows for efficient administration, consistent with good management and regulatory obligations. Jersey foundations have a legal and regulatory background of checks and balances, internal and external supervision, freedom under the Foundations (Jersey) Law 2009 backed up by proper regulation and stability. A Jersey foundation may have perpetual existence and a distinguishing feature is flexibility as to the precise bespoke terms of each foundation. Jersey imposes only
58 • Jersey - First for Finance
certain core requirements on the content of the foundation’s regulations, but leaves it to the founder to decide the detail of regulations and the exercise of power.
Unlike a trust, there are no beneficiaries who have an interest in the foundation’s assets or are owed any fiduciary duties.
Jersey foundation. They can be operated like a trust, but with the advantage of their own legal personality. Generally, they can be used in most situations where a trust or company might otherwise be set up. In some cases a foundation may be preferred – for example, as the owner of shares in a private trust company in place of a non-charitable purpose trust, since there is then no possible attack on the validity of the purpose. Foundations may be more attractive than trusts when holding businesses or non-income producing assets, or assets that are depreciating or high risk, because there are no duties to beneficiaries and because there is no requirement to diversify.
Except perhaps in relation to some areas of specialist UK tax planning, there is no obvious limit to the uses of a
Care is needed in the governance arrangements. The council of every Jersey foundation must have a ‘qualified
A Jersey foundation has no owners. That in itself gives it certain advantages. Broadly, it can exercise all the functions of an incorporated body including commercial trading activities, provided they are incidental to the attainment of its objects.
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FOUNDATIONS Courtesy Chris George
member’ (i.e. regulated under the Financial Services (Jersey) Law 1998) whose business address in Jersey becomes that of the foundation and the application of Jersey’s Anti-Money Laundering Regulations is ensured by the qualified member requirement and because only a qualified person may incorporate a foundation. Additionally, every Jersey foundation must have a guardian to oversee the carrying out of the council’s functions and who can call the council to account. As such, the guardian’s role is similar to the enforcer of a purpose trust, but guardians can also have a much wider, quasi-executive role. The founder too can have executive power. He or she can have such rights (if any) over the foundation and its
assets as are provided in its charter and regulations, which can allow those rights to be assigned to other persons or passed by Will or Codicil. The founder can be both a member of the council and its guardian, such that a very high degree of control is possible, if that is appropriate, given local tax and other legal issues. The guardian can be a council member but only if he or she is also a founder or the qualified member. Because powers can be reserved to the guardian, he can have an executive role in ensuring that the council carries out the foundation’s objectives. Given that the council is an executive body, rather like the directors of a company, made up of one or more members and that apart from the qualified member rule, there
is total flexibility as to the residency of the membership and organisation of the council. There is also a clear need for care in the design of governance and administrative arrangements as is apparent from the case of Dalemont Limited v Senatorov and others. The Jersey qualified member should not allow himself to be an isolated minority with no control over the decisions of other council members, limited or no access to information and no direct control over the foundation’s assets. More generally, the council is responsible for administering the assets of the foundation and for carrying out its objects, acting in accordance with the charter and regulations. The council members – which may simply be one or more – are required to act honestly and in good faith with a view to the best interests of the
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FOUNDATIONS Courtesy Chris George
foundation and to exercise the care, diligence and skill of reasonably prudent persons in similar circumstance. A special feature of the Jersey foundation is that it can be established solely for a particular purpose and need not have any beneficiaries at all. Where there are beneficiaries, subject to contrary provisions in the charter or regulations, they have no interest in the assets of the foundation, nor any rights to any information and they are not owed any fiduciary or similar duty by the foundation, the guardian or by the council. Jersey foundations are of course attractive to Middle Eastern, Asian and continental European clients for whom the concept of a trust is less familiar, but they are also of increasing interest to clients from a common law background. They are perhaps simpler and more easily understood than trusts. Also a Jersey foundation – as a distinct legal entity and able to exist indefinitely – is attractive to wealthy clients and for dynastic structures. There are obvious attractions in wealth management, particularly as extensive rights can be kept by the founder and – if there are any beneficiaries – their rights can be much more restricted than with trusts.
60 • Jersey - First for Finance
Foundations are ideal vehicles for succession or estate planning to hold shares in private trust companies (or in place of them), as true orphan structures with no shareholders, no beneficiaries, and no need for any assets at the start. They can be set up for both charitable and noncharitable purposes, such that Jersey has become a prime jurisdiction for philanthropic giving through charitable and non-charitable foundations. Guernsey has taken a different approach to beneficiaries, distinguishing between enfranchised and disenfranchised beneficiaries – those with rights to information and those without rights, and with provision for the movement of beneficiaries between these classes. This may appeal to clients wishing to incorporate distinct beneficial class rights, but the Jersey foundation allows flexibility to give beneficiaries different rights under the private regulations, or to create different classes of beneficiaries. The founder’s wishes can be followed without being restricted by the governing law. In Guernsey there is no requirement for a fiduciary licence holder to be on the council. This may be attractive to entrepreneurs using a foundation wishing to hold an operating company, without external interference.
However, if a Guernsey fiduciary is neither on the council nor a guardian, the foundation must appoint a ‘Resident Agent’ who must be resident in Guernsey and who must hold a Guernsey fiduciary licence. The Registered Agent will have record keeping and AML compliance obligations and would presumably often, therefore, be required to be on the council. Other distinctions between the Jersey and Guernsey foundations are that Guernsey’s reserved powers are limited to enabling the founder to amend, revoke, vary and terminate the foundation and are only available during the founder’s lifetime or, where the founder is an entity, for 50 years. Nevertheless, the founder could still have control because Guernsey allows the council to delegate its wider powers to the founder – presumably ensuring that the extent of any delegation was appropriate and that the extent of control by the founder is not excessive in case there is any danger of the corporate veil being pierced. Unlike a Jersey foundation where no fiduciary duties are owed to beneficiaries, in a Guernsey foundation the council and registered agent owe a duty to the foundation and the guardian owes duties to the founder and to any disenfranchised beneficiaries.
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FOUNDATIONS Courtesy Chris George
be reserved to the founder. It may even be considered by some to be too radical and arguably it lacks the infinite flexibility and precision of which a well-drawn trust is capable. However, the Jersey foundation is an entity of great flexibility which complements and offers an alternative to trusts and companies and has a valuable role to play in its own right. It represents an addition to Jersey’s ‘tool box’ of entities for wealth planning and commercial structuring and enhances Jersey’s existing services of incorporating and managing foundations elsewhere, whilst through express provision attracting the migration of such entities to Jersey. The Jersey foundation offers a wider choice to clients from both civil and common law backgrounds, through a bespoke vehicle tailored to the founder’s precise needs, offering privacy, discretion and with the founder having control over the allocation of powers. All of this being backed by the strength of Jersey’s reputation of stability, excellence and expertise.
Julian Hayden Julian has more than 25 years’ experience in estate and succession planning and specialises in trusts and alternative structures. Julian qualified as a solicitor with Withers and then practised in London. For a number of years he was a partner at Manches & Co and then moved to Jersey in 1997. Julian has been with Hawksford since 2002.
The Guernsey guardian’s role really is more akin to the enforcer of a purpose trust since the guardian is only required where there is a purpose in respect of which there are no beneficiaries, or where there are disenfranchised beneficiaries.
Julian has extensive expertise and knowledge in providing fiduciary services to a wide range of clients including high net worth entrepreneurs and families with significant international business interests. He provides advice on all issues of private wealth and wealth planning and has particular expertise in family governance, estate planning and succession planning, protecting a family’s wealth for the benefit of future generations.
In respect of other jurisdictions such as Liechtenstein, the Bahamas and Panama, there are again differences between the rights or otherwise of beneficiaries and there may also be distinctions in respect of forced heirship as between say Liechtenstein and Jersey – in the case of Jersey foundations, Jersey Law expressly prevails and overrides forced heirship rules of other jurisdictions. Similarly to Jersey, the council of a Liechtenstein foundation must include one person in Liechtenstein who is resident there and who has the capability to administer the foundation. In a Jersey foundation its administration will be in Jersey through the qualified member. This may be contrasted with Panama whose foundations can be administered anywhere. CONCLUSION The Jersey foundation may not be the perfect answer. There is some controversy over the rights or otherwise of beneficiaries and over the extensive ability for powers to
Courtesy Danny Evans (Jersey Tourism)
Julian is part of the executive team that heads up Hawksford Succession Planning, Hawksford Advisory and Hawksford Family Office. He is a member of Hawksford Group board and is one of the members that took part in the management buy-out of Rathbone Trust Company Jersey Limited in October 2008. He is a member of the Society of Trust and Estate Practitioners (STEP) and has recently been recognised as Trustee of the Year at the Citywealth Magic Circle Awards 2013.
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BANKING
The banking industry in Jersey is both significant and growing. We currently have 42 licenced banks, total deposits of £155 billion, which have increased by a total of 4.3% in the last two quarters, and employ close to 5,000 professionals. Whilst we have seen some consolidation recently, it is really gratifying to hear of a number of banking groups – including reportedly from Asia – who clearly see value in the Jersey proposition and are considering establishing a presence here. In the last year or so it has been pleasing to see that three new banking licences have been granted to both new and existing members of the Island’s banking fraternity. For over 50 years Jersey has been attracting deposits and investments from private clients and institutions across the world. Jersey benefits from a banking industry that is very diverse – in terms of the types of banks located here, the countries from which they emanate and the range of products that they offer.
Jersey’s diverse and thriving banking industry By Chris Blampied
Courtesy Chris George
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BANKING Courtesy Danny Evans (Jersey Tourism)
We have clearing banks, merchant banks and international banks from the UK, Europe, North America, the Middle East and Africa providing a range of savings, investment, wealth management and institutional services. This diversity helps cushion the impact of difficult economic times in any one sector. All that said, there is no denying that the banking industry worldwide has had its challenges and Jersey is not completely isolated from these. Unfortunately, the reputation of banks internationally has suffered with several high profile ‘scandals’ – mostly with no direct linkages to activity in Jersey. I will not dwell on these particular issues – which have been well trailed in the media – but I do sense in banks an understanding of the need to protect reputations by ensuring that integrity is evident in all that we do. This sits well with the stated aims of Jersey in being a jurisdiction that seeks to accommodate high quality, tax compliant business – where we can all feel comfortable that the high standing of the Island is protected. The economic impact of the low interest rate environment has led to compressed margins for banks and low returns for depositors plus the low or non-existent
64 • Jersey - First for Finance
economic growth rates in many of the countries where we traditionally source business. Plus finally in terms of headwinds, there are, of course, the external political and regulatory threats that we currently face. The recent agreement to enter into a FATCA-style arrangement announced at the G8 Summit moves us towards automatic exchange of information becoming the international standard but this is not without its own challenges. Make no mistake, this is not about protecting people who are trying to evade tax rightly due in the UK: such people can have no part to play in the future of Jersey. However, while acknowledging that there is a sustained move globally towards greater transparency, ensuring the legitimate confidentiality of clients who have their tax affairs in good order should be a priority. This is particularly important as we look to expand into new markets where confidentiality of data is ever important and clients and their advisers, who are key influencers, will want to be comfortable that Jersey can protect their client information. Against this backdrop, I am greatly encouraged by the willingness of the government, regulator and industry to
Courtesy Danny Evans (Jersey Tourism)
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BANKING Courtesy Chris George
work together to plan a sustainable vision of the future. Much time has been invested by professionals to consider the future of the finance industry in Jersey and to focus on how we should sustain and grow the industry. In my view, Jersey has nothing to fear from the prevailing ‘tax transparency’ agenda currently being promoted by a number of governments. Indeed, Jersey has a long history of being at the forefront of measures to tackle financial crime and has reason to feel proud of the recognition – arising from numerous independent assessments – of the high standards of our financial regulation, cooperation and compliance. The recently announced increased funding of Jersey Finance Limited will assist in the development of new and existing markets for us. These steps should help lay the foundations for continued growth for the Island, whether that be from banks looking to establish a presence in Jersey, or through Jersey firms looking to expand in new growth markets. With the World Wealth Report 2013, produced by RBC Wealth Management and Capgemini, recently predicting that the number of high net worth individuals is likely to grow by 6.5% a year until 2015, that future remains positive for the private client and banking industry.
Chris Blampied Chris Blampied is President of the Jersey Bankers Association. Chris has over 30 years’ experience in the banking industry and is currently Head of Banking, British Isles and Caribbean, RBC Wealth Management. He joined RBC Wealth Management in 1982 and has held a number of senior positions within the group. In 2005 he was appointed Managing Director of Royal Bank of Canada (CI) Limited. Chris is a Fellow of the IFS School of Finance and Fellow of the Securities and Investment Institute.
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FUNDS
Jersey: providing confidence to the global
funds community By Nigel Strachan
Funds business has been at the heart of Jersey’s finance industry now for over 40 years and today is one of the most prominent and successful sectors amongst its range of financial services. The international funds landscape in 2013 is, however, very different from the retail orientated focus of the 1970s and early 80s, and Jersey has worked hard to remain at the cutting edge and evolve with the times. With market conditions continuing to prove challenging right across the board and with rafts of regulation impacting the sector constantly coming on stream, never has this ability to adapt been more important than over the past few years. Benchmarked against global trends, though, Jersey’s funds sector has showed considerable resilience and in fact is still experiencing growth. The net asset value of assets being administered in Jersey now stands at £205.3 billion (as at March 2013, with nearly £23bn under investment management. The number of regulated funds remains around the 1,400 mark while unregulated funds continuing to grow in number. More specifically, Jersey continues to assert itself as a specialist centre for alternative funds, with alternative asset classes including private equity, real estate and hedge funds now representing around 70% of the total value of Jersey’s funds sector. As it focuses on giving the international funds community certainty and confidence on one hand and a welcome degree of flexibility on the other, the indications are that Jersey is in good shape to capitalise on the strengths of its funds industry as we look forward to the years ahead. 66 • Jersey - First for Finance
Courtesy Danny Evans (Jersey Tourism)
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FUNDS
EVOLUTION Jersey’s reputation as a specialist centre for funds business stretches back to the 1970s when fund groups set up to make use of redeemable share capital companies, accumulation and distribution share arrangements and early umbrella funds. Back then, UK expatriates and other international investors were beginning to show growing interest in retail funds, which led fund management groups to set up offices in Jersey to develop and promote their products. With retail funds beginning to flourish in financial centres within the European Union under the UCITS directive, Jersey’s fund product became more diversified, and a gradual shift towards funds for institutional and expert investors followed. Jersey began to attract an increasing number of private equity, venture capital, real estate, hedge and other alternative investment funds and, consequently, updated its regulations to introduce its Expert Fund Regime of 2004. At the heart of the reforms was a shift in emphasis from regulating on a fund by fund basis to a regime that focused on the probity and competence of authorised service providers in Jersey. It also acknowledged that, for an expert fund, it was the investors themselves who were best placed to conduct the necessary due diligence to evaluate the risk of making an investment in the fund. The changes made the authorisation process simpler, clearer and significantly reduced the time taken to process applications. This more streamlined approval process was a huge stride for the funds sector at a time when there was increasing competitive pressures from other jurisdictions. The result was that Jersey was successfully able to make real strides into the alternative investment fund market. The launch of the ‘Eligible Investor’ and ‘Exchange Traded’ fund classifications followed in 2008 - another move that had been keenly anticipated by many professionals, particularly private equity and hedge fund managers who invariably wanted an unregulated type of fund that could be set up and ready to trade in short timescales. Most recently, the introduction of the Private Placement funds regime in early 2012 has added a further dimension to Jersey’s fund options. Specifically geared towards limited numbers (15-50) of sophisticated investors, the regime offers – provided the fund satisfies certain conditions – a fast track, streamlined authorisation process. The overall result is a funds landscape in Jersey that offers a full spectrum of fund solutions, from highly regulated retail funds to lighter touch options for more sophisticated investors. REGULATION In tandem with this evolution of Jersey’s funds sector is its commitment to complying with the highest international standards. Maintaining investor confidence through stability, high standards of supervision and responsible and proportionate regulation, is crucial for the continuing success of Jersey’s funds sector.
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FUNDS
are kept under constant review with enhancements made to Jersey’s Limited Liability Partnership Law being a recent example. Building relationships with emerging markets also remains key and Jersey is making good ground in cementing its positive reputation in those markets and exploring new opportunities. Jersey is also being seen as an attractive centre for alternative fund managers to relocate to. Increasingly recognised for its safe environment, flexible approach, its world class legal, accounting and administration supporting infrastructure, and its attractive lifestyle, a growing number of fund managers are establishing a foothold in Jersey – seven asset managers have established a presence in Jersey over the past 12 months alone.
As well as having received endorsement from a number of respected global bodies in recent years, including the OECD, the UK government, the World Bank and the International Monetary Fund, Jersey also remains the highest rated offshore centre in the Global Financial Centres Index. Of course, the main regulatory issue on the table in recent years has been the EU Alternative Investment Fund Managers Directive (AIFMD), which finally came into play in July 2013. Having engaged heavily with the European Securities and Markets Authority (ESMA), Jersey’s regulator (the Jersey Financial Services Commission), the government and the industry have produced a distinct and flexible response to this regulation which will actually enhance Jersey’s position. The overwhelming message is that Jersey is focused on adopting a ‘business as usual’ approach to funds business within the EU. As from July this year, access to EU markets for Jersey is through private placement arrangements with individual EU countries, until at least 2018. In May, Jersey was in the first tranche of jurisdictions to have a cooperation agreement approved by ESMA, which is being entered into with individual regulators of EEA member states and allows Jersey to continue to utilise the private placement route. Jersey is also committed to being fully AIFMD compliant and obtaining an EU-wide AIFMD marketing passport by 2015, as soon as it is anticipated such passports will be available for non-EU alternative investment fund managers.
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Meanwhile, as a non-EU jurisdiction, Jersey is also able to offer the funds community a welcome degree of flexibility through a completely separate funds regime that lies outside the scope of the AIFMD – just as it does at the moment – for alternative investment fund managers who are marketing to the rest of the world and don’t want to access EU capital. All these routes put Jersey is a unique position. It can offer managers a route that is absolutely in line with the AIFMD, that offers all the stability and comfort the AIFMD brings and that would be offered by an EU Member State, from a centre that is in close proximity to Europe. At the same time, it also offers the ability to market their funds outside of Europe without the need to consider the impact of the AIFMD at all – a combination that is not possible from all EU member states or offshore centres. ENHANCEMENTS However, it is important not to be complacent and to look beyond the immediate transition to the AIFMD. Maintaining flexibility and developing innovative products remains vital in responding to the market and the industry and the regulator are continuing to look at ways to enhance the funds regime, find new opportunities and grow funds business. Besides AIFMD, for instance, the industry is working with other regulatory changes, such as the US Foreign Account Tax Compliance Act (FATCA) and engaging in the evolving debate on global tax information exchange. At the same time, Jersey’s broad range of fund regimes
Jersey’s commitment to innovation and taking a proactive stance in terms of regulation means that it is now in a very strong position indeed. Backed up by a highly skilled workforce and a first class infrastructure with more than 100 fund service providers, including administrators, managers and law and accountancy firms, Jersey can continue to give investors, fund promoters and managers the confidence they need and assert its position as a leading European funds centre. Nigel Strachan Nigel Strachan is Chairman of the Jersey Funds Association. As well as being Chairman of the Jersey Funds Association (JFA), Nigel is the Managing Director for Ipes in Jersey. A member of the Institute of Chartered Accountants of England and Wales and the Chartered Securities Institute, Nigel trained as a Chartered Accountant in London with PwC before moving to Jersey in 1998 to join PwC’s offshore tax group. He moved to Kleinwort Benson’s private equity and mezzanine funds team in 2001 and became Head of New Business for Corporate Clients in Jersey in 2006. Nigel’s principle areas of interest are offshore structuring and administration of private equity, mezzanine, real estate and hedge funds. He was educated at Diocesan College (Bishops’) in Cape Town and the University of Stellenbosch, South Africa.
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CISX
A double market milestone By Tamara Menteshvili
The Channel Islands Stock Exchange (CISX) is celebrating a double milestone during 2013. It is the 15th anniversary since the formation of the CISX and already in 2013 the Market Authority has announced that it has reached the Listing of its 5,000th security, a landmark for the CISX at a time when global finance is operating in challenging market conditions. These new milestones arrive at a time when the CISX has recorded consistent growth despite the difficult trading environment. During 2012 there were 510 new listings in total compared to 498 the previous year. The growth in listings at the Exchange has been achieved attributable in part to the Market Authorityâ&#x20AC;&#x2122;s focus on a highly personal service, an ability to adapt and remain innovative whilst meeting the requirements of international Issuers that are clients of CISX Members, as well as maintaining high
standards of governance and business practice. The Exchange consists of a very professional team that assisted by its Members, strives to put service first. Alongside new admissions to the Official List, there was also a further substantial rise in trading volumes. Turnover in trading volumes at the end of 2012 stood at ÂŁ45.4 million, a 64% increase on the previous year. One of the features of the development of the Exchange has been the growing demand for Exchange services in niche markets. The specialist debt market is one area where demand for a quick and efficient listing service is of particular importance now more than ever, given the changes about to come into force this July from the updated EU Prospectus Directive. The CISX is especially well placed to
service the demand as it has a demonstrable track record for the listing of specialist debt securities, including Eurobonds and Special Purpose Vehicles. It services a wide international community of Issuers from a convenient European time zone while remaining outside the EU; the CISX is also a recognised exchange for the purposes of the Qualifying Eurobond Exemption. In anticipation of the changes to the EU Prospectus Directive, the Market Authority has already introduced the Registered Issuer regime for the swift approval of specialist debt programmes. The Exchange has also become a popular choice for the listing of a range of alternative fund structures, including property and hedge as well as private equity funds. The CISX was also a pioneer in the private equity sector, being one of the first stock exchanges in Europe to allow the listing of interests in limited partnerships.
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The CISX has played a vital role in providing essential supporting infrastructure for the financial sectors in Guernsey and Jersey. Nowhere has this been more evident than in the investment fund industry, where the Exchange is central to the process of capital-raising from investors. With regard to the investment funds sector, the Exchange is experiencing increasing interest in the closed ended sector; this includes the listing of UK REITs, once again as a result of revised rules to the UK REIT market. There are three main benefits to be derived from listing securities on a recognised stock exchange such as the CISX: • Transparency • Marketability • The potential for liquidity Transparency underpins the expectations of investors, regulatory bodies and market participants in the post financial crisis environment. As a result, over the past two or three years there has been a greater focus on the transparency benefits of listing, particularly on an internationally recognised stock exchange. High standards and a credible track record form the basis of the Exchange’s international appeal. There are many reasons why a company may choose to list. Most often, the main reasons financial institutions wish to list are to create a market value, to provide investors with an exit route, to extend their product’s visibility, to secure a kite mark which demonstrates they have met rigorous disclosure requirements or to attract certain types of investors but regardless of the underlying reason, a listing on any Exchange should add value and facilitates enhanced information flow to investors (and the public generally). Additionally, it increases the marketability of the security in question and in certain circumstances gives the listed issuer a competitive edge. This is particularly true within the investment funds sector. Enhanced visibility through a listing may also lead to increased liquidity. It may be useful for readers to visit the CISX website, www.cisx.com, in order to familiarise themselves with the level of market data, including trading activity and corporate actions information displayed for CISX Listed entities.
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Achieving liquidity through secondary market trading activity will depend on a number of factors. These will include the following key elements: • a security the type and quality of which will be of interest to market makers (a minimum of two market makers would be required in order to optimise price movement and generate market activity) • how well the Issuer/Product is marketed (both initially and ongoing) and • whether there is a mixed shareholder base. (A large and diversified shareholder base should correlate to more share activity, with some exiting at some point and others entering at different times creating a secondary market in the shares.) There is strong evidence to suggest that regardless of whether shares are closely held with investors taking a long term view (and therefore little secondary market activity may arise) a listing can also assist Issuers in raising additional capital post the initial capital raising. For example, in examining trading volumes at the end of 2012 these were mostly trading activity within the funds sector (both closed-ended and open ended investment companies). Of particular note is the fact that £27 million was raised by Listed Closed Ended Funds in 2012 alone. It is reasonable to suggest that a listing can create investment opportunities that would otherwise not arise – whether a technical listing to attract investment, to facilitate market value or to provide a potential exit route for investors through secondary market trading. The CISX has the facilities to open up additional distribution channels and unlock new categories of investors such as pension funds, insurance companies and collective investment schemes. The Market Authority has always operated in a transparent and communicative manner with the Directors of CISX Listed Issuers and equally so with our Listing Members, with whom the Exchange works in partnership – a unique feature of the Exchange’s business model. The Market Authority combines a pragmatic approach with responsibility in delivering a high quality, professional service and working to ensure Listed Issuers understand fully the implications and practicalities of the Listing Rules, offering information and guidance through workshops, seminars and conferences. This educational role has always been a key element of the Exchange’s work but in the aftermath of the financial crisis there is even greater emphasis on disclosure and transparency and the role of listing in achieving these goals.
There is an understanding of the need for differentiation in a competitive marketplace and the CISX is well placed to meet the challenges of a demanding and diverse universe of product providers. The Market Authority is willing to work with each issuer to explore how their product structure might fit with the Exchange’s Listing Rules and, then, how the Exchange might bring added value through the listing. The listing activity in the first quarter of 2013 has been the busiest period to date. There are over 200 international issuers represented on the Official List with more than half the listings domiciled outside of the Channel Islands. The international outlook of the CISX and the acceleration in growth since inception demonstrates the increasing demand for CISX services in its key markets worldwide and are positive pointers for the future. Tamara Menteshvili Tamara Menteshvili is the Chief Executive of the Channel Islands Stock Exchange (CISX). Born in the United Kingdom and a naturalised citizen of the United States of America, Ms Menteshvili was educated in New York and has wide regulatory and financial services experience. She graduated Cum Laude from Queens College of the University of the City of New York where she majored in Political Science and English. Ms Menteshvili was formerly the Deputy Director of Investment Business at the Guernsey Financial Services Commission (GFSC), and served in that capacity since 1995, prior to her appointment as Director and Chief Executive of the Exchange. During this time, she developed a supervisory regime for the extended Protection of Investors Law and was also instrumental in developing the initiative for the establishment of the Exchange. Prior to her appointment at the GFSC, Ms Menteshvili worked from 1972 – 1989 for Merrill Lynch in New York and London reaching the position of Vice President and Regional Administration Manager, Institutional Sales. In 1990 she joined the UK’s Investment Management Regulatory Organisation. Ms Menteshvili is a member of the Institute of Directors (IoD) and a Fellow of the Securities & Investment Institute. She is a Liveryman and Court Assistant of The Worshipful Company of International Bankers. She holds the Freedom of the City of London and is a member of the Guild of Freemen of the City of London.
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Ashburton Investments is a registered business name of Ashburton (Jersey) Limited. Registered business address: PO Box 239, 17 Hilary Street, St Helier, Jersey, JE4 8SJ. Ashburton (Jersey) Limited is regulated by the Jersey Financial Services Commission.
Only when you have access to more of the picture, can you focus on the best opportunities. For over 30 years, we have established our reputation by creating and preserving wealth for our clients. As Ashburton evolves, we will continue to build on our heritage, whilst opening up access to even more. Find out more at www.ashburtoninvestments.com, then speak to your ďŹ nancial adviser.
A part of the FirstRand Group
A view
Our view
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Take Ten:
Investment Management Leading investment firms in Jersey provide Jersey - First for Finance with insights into their approach to meeting investor requirements, objectives and expectations, whilst highlighting how their Jersey operation contributes to their provision of a comprehensive range of solutions for clients worldwide.
Peter Bourne, Managing Director, Ashburton (Jersey) Limited Tim Childe, Head of Quilter Cheviot Jersey Office
1. What methods do you use to ascertain how various asset classes will perform over the medium to long term and how are the results of these then incorporated into shaping your strategic approach? Peter Bourne: At Ashburton, we use a combination of methods to provide an indication of how we think the various asset classes will perform over the medium to longterm; the next five years for example. First, we look at historic returns in the expectation that – as long as we have sufficient data – the past will provide a reasonable indication of performance in the future. Second, we forecast various fundamental factors such as dividends, inflation or interest rates, and choose an appropriate ‘end-period’ valuation to come up with an overall forecast of returns. Third, we analyse the relationship between valuations and future returns and then use this as a guide for future returns based on current valuations. We also complement our valuation work with long-term macro analysis to form a view of the likely direction of fundamental drivers of the various asset classes such as corporate profits and interest rates. The results then shape how we think about the various asset classes on a strategic basis. There is considerable evidence to support the argument that valuations predict longterm returns across asset classes. Valuation analysis is therefore central to the process by which we generate long-term return forecasts. Tim Childe: Our process is focused towards future rather than historic returns. We use a combination of our views on the macroeconomic outlook, coupled with estimated future risk premiums on a variety of asset classes to derive returns for the medium to long-term.
Our clients have a variety of different investment objectives in terms of return expectation, profile of return (‘certain’ income vs. ‘uncertain’ capital) and acceptable risk. We offer a range of investment strategies to meet these objectives and work with clients to select the most suitable one. Some clients have specialist investment objectives – including mathematically defined risk parameters – and we have the ability and resource to work with them and their financial advisers using quantitative modelling. The software used in this process is supplied by AlternativeSoft – a leading supplier to the hedge fund industry – which provides features such as four moment CAPM modelling, Black-Litterman and advanced portfolio optimisation techniques. 2. Can you give us your assessment of the performance of the various asset classes, including government, corporate and currency bonds – from developed and emerging markets – taking into account factors such as the European debt crisis and exchange rate risk and do you envisage a continuation of the historic corporate bond and equity returns seen over the past few years with continued lower returns for fixed income? Tim Childe: The global economy is growing around its long-term average rate but we expect the wide divergence between emerging and developed economies to continue. A sustained period of leverage during the 2000s pushed the limits of confidence in the fiat money system to breaking point in 2008. Since then policymakers, central banks, public and private sector organisations have been involved in a period of deleveraging in order to return the system to a more sustainable equilibrium. The scale of the crisis means there is little historical precedent but our view – given the relative lack of progress so far – is that the deleveraging process could take at least seven years. During
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this time austerity measures will restrain economic growth in the developed world where GDP is likely to remain below trend. We expect a combination of favourable demographics and improving standards of education to sustain a superior rate of growth in the emerging economies over the next 10 years. They will take an increasing share of global growth/wealth and currencies and will adjust accordingly. Many emerging countries have stronger financials than their developed world counterparts. The expansion of central bank balance sheets has not proved inflationary so far, mainly because the extra money printed has been retained within the banking system. High output gaps and globalisation of the supply chain will continue to exert disinflationary pressure on wages for the foreseeable future. In our view the GDP deflator – rather than CPI – provides a better indication of just how low inflation is in the developed world. Through quantitative easing central banks – first the Federal Reserve, then the Bank of England and now the Bank of Japan – have successfully suppressed interest rates and bond yields in the process of easing the debt service burden. This policy appears likely to continue for the foreseeable future. The inflexibility of the Eurosystem coupled with divergent political interests presents additional challenges for the eurozone. Deleveraging and rebalancing the countries and banks within the eurozone will be more problematical than elsewhere, but while German Bundesbank remains the defacto net creditor, we do not anticipate a breakup of the euro.
Peter Bourne: In our view, equities are the most attractive asset class from a mediumterm perspective for the buy-and-hold investor. Fixed income returns, on the other hand, are expected to be poor by historic standards. We expect lower returns in fixed income markets than those that have been achieved in recent years as we believe the trend of falling bond yields is likely to end. However, high yield and corporate bonds in emerging markets do appear to offer better value than their respective developed world counterparts. We would caveat this view by highlighting that flows into corporate bonds have been very strong over the past two years and may diminish going forward, adding some tactical risk to this asset class. Our expectation for equity returns are modestly higher than the long-run real returns generated over the past 110 years but materially better than the returns generated since the turn of this century. In the short-term, the challenge is whether to continue to buy into what is clearly a liquidity-fuelled turnaround in investor sentiment, which has driven equity markets considerably higher over the past year. Given our medium-term view, we remain positive but would look for some consolidation before entering the market aggressively again. The European debt crisis obviously poses a risk to this view, were the Euro area to suffer further dislocation or even break up, although that is not our base case. A further risk would be any restriction of the liquidity currently being provided to the global financial system by the world’s central bankers. 3. Has an increased aversion to risk led to a shift in investor sentiment away from active management toward passive investing and how do you manage risk and evaluate the effectiveness of your risk management techniques and controls?
Bond yields are low and the term premium is negative. As growth improves and inflation picks up bond yields should rise. Our view – along with the consensus – is that growth will indeed improve steadily over the next few years. US and UK 10-year bond yields should be nearer 3.2% (nominal GDP) rather than below 2% as they have been recently. Deleveraging, the experience of Japan and the continuing threat of short-term disinflation means, that bond yields could remain below equilibrium for longer than the consensus expects.
Peter Bourne: In our view, passive investing is only less risky if one regards risk as a relative (to benchmark) concept. We do not believe that this is always the most appropriate measure of risk. The most important risk that investors care about is a permanent loss of capital at the overall portfolio level. The passive versus active debate is arguably less meaningful in this context.
Equities are fair value based on Case Shiller/cyclically adjusted earnings. Current valuation levels have been consistent historically with average real rates of return of around 7%, although we would adopt a more conservative approach at the present time given, the global structural imbalances.
Nonetheless, passive investments can play an important role in portfolio construction and we do apply them where appropriate. The choice of active versus passive investing should be made with regard to the extent that one thinks inefficiencies can be exploited in a particular market that might justify the higher fees of active funds. Passive products also need to be assessed in terms of their tracking error, fee structure and underlying risk, especially if they are synthetic instruments, where risks may be higher.
We estimate that the superior nominal GDP/corporate sales growth will help emerging markets/companies exposed to that region produce a return premium of 1-2% over developed markets. Est.Yield UK Equities International Equities
3.3% 2.5%
Est. Capital Appreciation 2.7% 3.5%
Sovereign Debt Corporate Bonds Index-Linked Gilts UK Cash UK Property Hedge Funds UK Private Equity
2.0% 3.0% 0.5% 0.1% 4.0% 0.0% 0.0%
0.0% 0.0% 2.0% 0.0% 0.0% 4.0% 6.5%
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Risk management is central to our investment process. Mandate restrictions are designed around specific portfolio risk tolerances. In addition, risk metrics are
Est. Total Retun 6.0% 6.0% 2.0% 3.0% 2.5% 0.1% 4.0% 4.0% 6.5%
Basis for Total Return Estimates Nominal GDP growth + inflation + dividend yield Nominal GDP growth (higher than UK) + inflation (higher than UK) + dividend yield 10 year gross redemption yield 10 year sovereign debt yield + risk / liquidity premium Real yield on 10 year index-linked + inflation Cash rates 10 year sovereign debt yield + estimated rental growth Equity long only - bond returns Equity return + liquidity premium
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employed to monitor portfolio risk and assessed on an ongoing basis by a risk officer and our internal governance structures. Our Investment Governance Committee plays an important role, not only in assessing various risk factors but ensuring that our investment philosophy is executed consistently and appropriately across our various products.
larly in light of the continued weakness in European economic data. There is also a bold monetary experiment underway in Japan with the Bank of Japan adopting very aggressive quantitative easing in the hope of lifting inflation to 2%. While this has been good news for equity markets so far, there is always the potential that it creates major instability in bond and currency markets.
Tim Childe: In our experience any risk aversion is reflected in the bond/equity mix rather than active/passive management, where the latter has more to do with perceived cost savings.
Aggressive withdrawal or reversal of US monetary stimulus before trend growth has been achieved may unnerve equity markets, as could tightening of policy in higher growth economies such as China. The lack of structural reform in the developed markets presents ongoing risk associated with unsustainable promises i.e. insufficient funding for state pensions and the proposed eurozone banking union.
4. Why is the use of alternative investments – representing different approaches to investing across a variety of markets and asset classes whilst allowing portfolios to diversify and hedge out risk – increasingly becoming part of the investment management mainstream, attracting both institutional and retail investors? Tim Childe: In our experience the trend towards alternative investment approaches has reversed in recent years. The challenge of identifying in advance the likely level and – most importantly – the consistency of return has been a detractor for alternative approaches. This is not to say it doesn’t have a place in investment in the future and it may prove particularly attractive in a rising interest rate environment. Peter Bourne: In the post credit crisis world, a combination of increased risk awareness, volatile markets and a search for yield has led to a shift to investors seeking more defined or certain investment outcomes. Absolute rather than relative return benchmarks are becoming more standard in the retail space, especially where this is directed by advisors. In addition, financial innovation within improved governance and regulatory structures has also played an important role in making alternative investments accessible to a wider investor base. These trends are likely to continue as investors seek more efficient solutions to their longer-term needs. Ashburton and our parent company, the FirstRand Group in South Africa, has responded proactively to this shift in the asset management industry and has created Ashburton Investments, a ‘new generation’ asset management business, which will blend traditional and alternative investment strategies to provide access to more solutions for global investors. 5. What do you see as the key factors that could derail investment performance in the year ahead, perhaps economic slowdown in the US and/or China, resurgence of the European debt crisis or Middle East conflict? Peter Bourne: There are a number of risk factors, some of which have been with us, or remain with us, for a long time, it seems. Amongst these, we would highlight the risk of a further deterioration in the European debt crisis, a sharp slowdown in China, an increase in geopolitical tensions in Korea or the Middle East for example, or slower than expected growth in the US. Avian flu is something which has reared its head again more recently. In the recent past, markets have shown themselves to be relatively sanguine about these factors. Perhaps of more concern in the medium-term might be how the markets and investors anticipate a possible end to, or reduction in, quantitative easing in developed markets. A disorderly outcome may force a swift readjustment of bond yields and some dislocation to equity markets. We would note, however, that these factors remain risks, and not necessarily our base case scenario. Tim Childe: Eurozone debt markets remain a potential source of instability, particu-
In addition, there is danger of political and social unrest, particularly surrounding commodity producing areas such as the Middle East, Latin America, China and Japan. Whilst wage inflation and corporate taxes are currently low, an increase in either of these would impact on corporate profitability and in turn investment performance. 6. Are multi-asset funds an option which many investors are finding more attractive in the current climate – benefiting from the rally in risk assets – and how are your multiasset funds currently positioned? Peter Bourne: The short answer is certainly yes. Not only are investors recognising the need to build a more diversified portfolio and hence increasingly outsourcing asset allocation to professional investors, legislative changes designed to improve the quality of advice to retail investors is leading advisors to similarly outsource investment decisions for their clients. RDR in the UK and the FAIS act in South Africa are just two examples of this regulatory trend. Multi-asset funds are an effective way to create and preserve wealth, meet a client’s longer-term investment expectations and for the investment manager to use his asset allocation skills to be in the right asset at the right time. There are multiple levers available to an experienced and innovative multi-asset manager to use in delivering appropriate returns within established risk parameters. Ashburton’s Multi Asset Funds are currently positioned in line with our medium-term projections, although we retain some firepower to increase equity risk as and when markets consolidate after the recent surge. On a balanced portfolio view, we are overweight equities and corporate credit and underweight sovereign credit risk. Our preference remains for emerging market debt while our equity exposure reflects our belief that the underperformance of emerging markets is overdone. We have had an overweight position in Japan for some time, which has been of benefit. 7. What are the implications for investment managers (product design, risk management/compliance, sale, distribution and client reporting) of recent McKinsey research which shows that by the end of 2013 more than 20% of institutional investors expect to integrate their hedge fund allocation with underlying asset classes? Peter Bourne: The McKinsey study points to a resurgence of popularity for alternative investments over the past two years, driven by increasing demand for these amongst US retail investors, a move to more outcomes-based investing and by definition, absolute return benchmarking, by both institutional and retail investors. The final driver is a blurring of the lines between traditional and alternative managers. We would concur that hedge funds cannot be bucketed into a catch-all alternative asset class, the components of which may carry very distinct risk, liquidity and return char-
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acteristics. The adoption of a risk-centric approach logically leads to a more appropriate grouping of assets with similar characteristics into the same class, for example, equities, which may include long only and long-short strategies.
investments investing in alternative ‘assets’ (e.g. commercial property, private equity, commodities) and/or using alternative strategies (absolute/hedge funds). The alternative content of a diversified portfolio is usually less than 20% of the total value.
Our business strategy is increasingly framed around our investment philosophy, which has a strong capital preservation bias at its core. We have mentioned our strong emphasis on risk management elsewhere in this article but as part of the broader Ashburton Investments business, product development and distribution strategies are equally influenced by the range of new and innovative products available to us. Our product platforms are currently being enhanced to enable this.
10. Looking ahead, what are the current themes you are taking into account in your investment profile and how are you extending your product range and services in Jersey and worldwide?
Tim Childe: We don’t have significant investments in the alternative space, but we do already notionally allocate recommendation on the basis of the underlying asset sensitivity where possible i.e. some hedge/absolute funds are more bond orientated, others more equity sensitive. 8. What are the key benefits for you and your clients of having a base in Jersey? Tim Childe: Having operated in the Island since 1986 and offering the services and skill sets of the largest discretionary investment management team in Jersey, Quilter Cheviot is able to form strong and important relationships with local resident private clients as well as the leading fiduciary and legal intermediary businesses. Peter Bourne: Ashburton has a strong history and investment record in Jersey of which we are justifiably proud. In fact, this legacy is one of the pillars upon which the FirstRand Group has launched its new asset management company, which we have branded Ashburton Investments. The jurisdiction offers us a robust and recognised regulatory platform upon which to build and sell product to our core Channel Islands and African markets. We are well supported by other financial services providers in the Island and specialist investment and fund administration resources are available to us here. There is also no doubt that being positioned in the Island adds its own unique flavour to our firm. While we are obviously close to our clients here and are able to offer easy access to our fund managers, what is equally important to us is the strong client service culture of the business that has developed over the years. Even though we have expanded our global investment capability to embrace London and South Africa in recent years, our locally-based investment managers represent some of the longest serving and stable members of our management. 9. With investors looking beyond traditional investment classes to alternative investments, how well is your operation in Jersey (which is complying with AIFMD) able to accommodate investors keen to capitalise on non-traditional asset classes? Peter Bourne: Our strategy here in Jersey and within the broader Ashburton Investments business is to deliver an integrated investment approach which blends traditional and non-traditional investment expertise to generate innovative solutions. What we mean by this is that we recognise that investors require access to more sources of return, broader investment capabilities and increased focus on risk management. While Jersey will remain at the core of our multi asset operations, we anticipate leveraging off other areas of our Group to access and deliver innovative and differentiated solutions for clients. Tim Childe: We research, monitor and recommend a select universe of collective
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Tim Childe: We have a diverse universe of investment recommendations to facilitate our discretionary portfolio management services and this is kept under continuous review, but two areas in particular are seeing increased coverage: The advancing economies will take an increasing share of global GDP over the next 10 years and the likelihood is that corporate profit and investments opportunities will follow this trend. Our universe of collective investments covering these opportunities continues to expand at a steady pace, albeit that exposure to this theme can also be obtained through developed world companies with operational exposure to advancing economies. Investments in ‘risk free’ assets such as sovereign debt are an increasing challenge in terms of protecting wealth. Most investors are agreed that a ‘bubble’ exists in sovereign – and corporate – debt markets mainly as the result of central bank quantitative easing. Opinions vary considerably on how and – most importantly – when bond yields will revert to normal i.e. closer to nominal GDP. While yields are now trending higher our view is that central banks are not prepared for a disorderly unwinding of the bubble and have the tools to ensure this doesn’t happen. This means low yields will persist, albeit within a long-term uptrend. For many investors switching to ‘risk assets’ such as equities is not an option so our range of fixed interest investments aimed at protecting absolute nominal capital is expanding. Peter Bourne: Ashburton remains committed to Jersey as a finance centre and fund domicile of choice for our offshore operations. We have operated here successfully for some 30 years, servicing our primary markets of the Channel Islands, Africa and the UK and that is not expected to change. However, as our business evolves, it is important we continue to deliver solutions on appropriate platforms to our clients and, as part of this strategy, we have recently launched a UCITS fund umbrella in Luxembourg. UCITS is a recognised retail fund structure that provides for common standards of governance, liquidity and transparency and many jurisdictions worldwide now view UCITS as a global standard. In South Africa, we have also created a range of rand based collective investment schemes under the Ashburton brand. As part of this collaborative approach within Ashburton Investments, we recently launched an Africa Equity Opportunities Fund, and we expect to bring other emerging country products to market later this year, as part of a drive to expand our existing capabilities in those markets. We are also focusing on ways to blend our active approach with the structuring and passive skills in our Group. To conclude, the language of the asset management industry is very different today. In launching our new generation asset management company, Ashburton Investments has recognised the blurring of the lines between traditional and alternative investments. We are focused on delivering appropriate solutions for clients, recognising that our clients are increasingly looking for certainty and clarity of objective in meeting their investment needs into the future.
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INVESTOR SERVICES
Your Partner in Jersey. Global solutions, delivered locally J.P. Morgan is a stable and trusted partner to traditional and alternative asset managers across the Channel Islands. Through our local presence in Jersey and a world-class team, we deliver innovative and intelligent solutions to clients globally with one of the most comprehensive global platforms available. We administer some of the most complex and innovative fund ranges in the Channel Islands and provide the resources, service models and experience to meet ongoing changes in the regulatory environment and investor demands. Our offices in the Channel Islands specialize in the funds sector providing a comprehensive range of asset servicing solutions for Jersey and Guernsey domiciled fund vehicles.
To ďŹ nd out more, visit jpmorgan.com/investorservices Jenny Swan, jenny.swan@jpmorgan.com or +44 1534 626325
Jersey Branch is a branch of JPMorgan Chase Bank National Association. J.P. Morgan Management (Jersey) Limited. J.P. Morgan Trust Company (Jersey) Limited. Registered Office Address: J.P. Morgan House, Grenville Street, St Helier, JE4 8QH. Regulated by the Jersey Financial Services Commission. Š2013 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank N.A.
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ISLAMIC FINANCE
Islamic Finance in Jersey By Trevor Norman
In previous editions of this publication I have concentrated on the experience and expertise offered by financial service practitioners and institutions based in Jersey in meeting the demand for Shariah-compliant products to both individuals and institutions alike. This article will seek to highlight some of the trends of the past year, including a first-of-its-kind real estate sukuk, whilst reaffirming the commitment of firms in Jersey – and of our government – to providing cost effective solutions to meet an increase in demand for these services, both from our traditional customers in the Middle East and more recently from the Far East. Financial institutions in Jersey have been providing services to Muslim clients – and in particular for those resident in the GCC – for many years. Unlike some other western countries, Jersey has not had to make any changes to its laws to permit Islamic financial transactions or investment, thereby ensuring that conventional and Islamic financial products are governed, regulated and administered on the same basis. Many of these changes to the laws of other countries derive from having to determine the taxation treatment of financial contracts under Shariah where interest is forbidden, and where the profits arising from the Shariah-compliant contract do not readily fit within the countries’ tax laws. Jersey’s position as a tax-neutral jurisdiction means that no such amendments are necessary but also our other corporate laws and regulations are such that in over 15 years of structuring Shariah-compliant vehicles, I have yet to encounter a problem with a structure or contract that could not be accommodated within Jersey’s laws. This flexibility is particularly relevant in the context of Shariah-compliant financial products, because there are a number of different schools of Islam, each having their own interpretations of what is and is not compliant, such that a financial product that is certified as being Shariah78 • Jersey - First for Finance
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compliant in Malaysia may not be deemed to be compliant by Scholars from the Kingdom of Saudi Arabia. These differences are not only confined to financial products, there are also variations between the schools over the rules of inheritance and forced heirship. Many practitioners from Jersey are well versed in the basic concepts of what is and what is not Shariahcompliant from a financial perspective, however, they will often have to work with a Shariah Scholar to ensure more complex structures and arrangements, for both individuals and institutions alike, comply with Shariah Law, such that, where relevant, the Scholar can approve a fatwa (ruling) for the financial service being provided. The two primary areas of Shariah-compliant service in Jersey are those offered to: a) Individuals, through private wealth management services such as the establishment and administration of trusts, foundations and private companies, and b) Institutions, by way of establishment and administration of collective investment funds, and other vehicles for raising finance or the investment of capital. PRIVATE WEALTH MANAGEMENT VEHICLES Jersey’s position as an international financial centre is founded on the provision of private wealth management services such as the establishment of trusts, private companies and more recently foundations, and many such structures have been established for GCC residents. There are many reasons why an individual may wish to establish such an entity ranging from the simple creation of a company to own, for example, a holiday residence in London, to the more complex structures required by a family office or the ownership of a family business to ensure that this is not broken up on the death of the patriarch and founder. One of the side effects of the ‘Arab Spring’ has been an increase in the number of families in the Middle East purchasing a property (or properties) in historically stable European countries as a potential refuge in the event of political disturbance in their home country. Many have purchased substantial properties in the UK and many of these are owned through Jersey companies, which in turn are owned through a trust established in order to maintain confidentiality over the ownership of the property, and/or to eliminate any issues over obtaining probate in the event of the death of the beneficial owner. The other development in the past year or so has been the increasing use of foundations by GCC residents.
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There are many articles in which academics debate and postulate on the similarities between a trust, a foundation and a waqf but for the end user resident in the GCC and MENA region, the more important differences between a trust and a foundation are: • the fact that a trust has developed in accordance with the principles of common law, whilst the foundation derives from the principles of civil law which are more customary in those countries, • assets in a trust are owned and controlled by the trustees, so the person establishing the trust (the settlor) has little direct influence over those assets once they have been transferred to a trust. In contrast, the person establishing a foundation (the founder) may be appointed as the guardian and/or as a member of the council, thereby retaining direct influence over the underlying assets, and • a Jersey foundation owns its assets in its own name, whereas with a trust the assets are held by the trustees. These factors give the person establishing the structure the opportunity to retain greater control over the ownership of the assets, a point that can be of particular importance when the underlying purpose of the structure is to provide a safe haven for assets in uncertain times. CORPORATE VEHICLES AND FUNDS As mentioned previously, the Jersey Financial Services Commission (JFSC) as regulator of financial services in Jersey does not impose any additional or different regulatory criteria on a vehicle established to issue securities, be they either ‘conventional’ or Shariah-compliant, nor does it impose any requirements over the establishment of the Shariah Supervisory Board that will issue the fatwa
and monitor the Shariah compliance of the vehicle and its investments. The JFSC have established close links with regulators throughout the GCC and have Memorandums of Understanding with many of these, the one with Bahrain having been signed in 2002. Following the collapse of several collective investment schemes in the GCC in recent years the regulatory authorities of Kuwait, Saudi Arabia and more recently the United Arab Emirates have introduced extensive regulations and controls over the sale and distribution of funds established in other jurisdictions and this has impacted on the use of funds regulated in Jersey by regional institutions. These regulations do not generally extend to ‘private’ funds and this has led to an increasing number of ‘club’ structures being established in Jersey where a small group of investors will pool their money to purchase a single asset, often UK real property. GENERAL INVESTMENT TRENDS Whether it be in private wealth structuring, or vehicles for corporate investment, the continuing weaknesses of the pound sterling aligned with a fairly robust (if unspectacular) economic outlook for the UK has also made it a popular place for investment in corporate real estate of many different types. The most obvious target for most investors in corporate real estate are the office developments in and near the City of London. However, the prime focus of many businesses in the City is financial services: because of the Islamic prohibition on riba, rental income from such sources is deemed to be haram (not allowed) so very little central London property is actually acceptable as a Shariah-compliant investment. Naturally there are exceptions, premises occupied by
government departments being an example, but this requirement to consider the underlying activities of the tenant has driven many Islamic investors to look outside London. Recent transactions in corporate real estate have been in the following sectors: i. student accommodation ii. retail stores – clothing, furniture and DIY iii. retail distribution centres iv. office accommodation for non-financial services companies. Of particular note was the issue in January 2013 of a sterling denominated sukuk based upon the rental flows from offices occupied by a computer company. The transaction has been widely reported as being a first of its kind in the UK but what is not so widely reported is that both the property owning company and the issuing vehicle are Jersey registered structures. CONCLUSION The advantages for Muslims of using Jersey for either private wealth, corporate or institutional structures are very similar to those for any other group but Jersey’s long-standing connections to the Middle East bring an additional benefit of experience and expertise in establishing these structures in a Shariah-compliant manner. Trevor Norman Trevor Norman is the Chairman of the Islamic Finance Community of Interest Group of Jersey Finance. He joined Volaw Trust & Corporate Services Limited in 1988, becoming a director in 1989 and is responsible for the management of Volaw’s Funds and Special Purpose Vehicles team, together with their Islamic Finance team. He is an acknowledged industry specialist in Islamic finance work, having specialised in this work for over 15 years. He has worked on a wide variety of Shari’a-compliant transactions, including several real estate funds, various specialist Shari’a screened equity funds and the award-winning Caravan I securitisation Sukuk. The author of several definitive articles on Islamic Finance, Trevor is a regular speaker on the subject at International Conferences. He is a Fellow of The Institute of Chartered Accountants in England and Wales and a member of the Society of Trust and Estate Practitioners (STEP), the Institute of Islamic Banking and Insurance, the International Tax Planning Association and the Institute of Directors.
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INSURANCE Images Courtesy Danny Evans (Jersey Tourism)
Jersey as an insurance and protected
cell structure domicile By Richard Packman
Jerseyâ&#x20AC;&#x2122;s finance industry has historically been led by its banking, trust and investment fund expertise however, as diversification in the economy is sought, the insurance sector is working on expanding its contribution and presence within the Island. Recent developments have seen the formation of the Jersey International Insurance Association (JIIA), a firm and positive announcement on Solvency II and an increase in enquiries for new captives, as well as interest from insurers and reinsurers who are considering redomiciliation. Jersey has the necessary legislative and regulatory framework in place for insurance business to be transacted and managed in the Island and it can offer many if not all of the same benefits, advantages and services as other,
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perhaps more recognised insurance jurisdictions (e.g. Guernsey) and it has arguably a better infrastructure and greater flexibility regarding entry for those with specialist skills.
ronment that is attractive for captives and specialist insurers / reinsurers.
With a well earned reputation as one of the foremost specialist international finance centres and a first class regulatory regime, Jersey has an impressive platform from which it can encourage and attract significant levels of captive insurance, insurance company and reinsurance business.
A formal statement issued by the Jersey Financial Services Commission (JFSC) in 2011 advised that no regulatory or other reasons had been identified for adopting Solvency II in Jersey and that the Island would focus on the international standards set by the International Association of Insurance Supervisors (IAIS) which are the standards against which Jersey has previously been assessed by the International Monetary Fund.
SOLVENCY II Jersey is not part of the EU and is therefore not required to adopt this directive. After consultation with industry, government and the regulator, the decision was made for the Island not to seek equivalence and so offers an envi-
This decision was seen as a positive one by industry which now provides a certainty to existing and potential captive clients. Indeed, it is considered that this stance will enable Jersey to prosper with the EU captive jurisdictions (such as Malta, Gibraltar and Luxembourg) being
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faced with the increased capital and regulatory requirements of Solvency II, alongside several non-European captive jurisdictions seeking third country equivalence.
for an insurance company. The core will also pay any expenses relating to the company as a whole (e.g. administration fees, audit fees, legal fees). The cell will, however, be required to inject capital if the PCC requires additional capital for the overall solvency of the company owing to the cell’s high level of premiums and for it to be able to cover all its potential liabilities.
In 2011 Jersey passed an amendment to its Company Law enabling the pain-free merger of Jersey and nonJersey companies. Together with the Island’s decision for non-equivalence, this could therefore provide a path for the smooth redomiciliation of existing captives to Jersey once they realise the benefits of Jersey as a jurisdiction for insurance business.
PCC BENEFITS The advantage of a PCC is that there are many companies who wish to proactively manage their risk but do not have the capital, nor size of premium, to set up their own individual captive insurance company, with all the inherent expense that goes with it.
JERSEY BENEFITS Jersey’s status as a Crown Dependency gives the jurisdiction constitutional rights of self-government and judicial independence. This offers both businesses and investors the benefits of an independent International Finance Centre which is close to the United Kingdom and mainland Europe. Jersey is in the same time zone as London and daily flights are available to the UK capital along with regular flights to other European centres.
PCC’s provide a means of entry into the captive insurance market to entities for which it was previously uneconomic. This makes a PCC a strategic and flexible risk financing option providing cover and capacity where existing markets may be restrictive. Furthermore the PCC gives access to other benefits of a traditional captive insurance company, these include: • Stable and lower risk financing costs • A focal point of a risk financing strategy • Access to reinsurance markets • Increase in net cash flow • Insurance cover, which may be difficult to obtain in the standard market
Insurance companies (including captives) have a 0% corporation tax rate, and there is no transaction document stamp duty or withholding tax, making it an attractive domicile for insurance clients. Jersey is highly regarded as a stable and strong corporate jurisdiction comparable to – and competitive with – other jurisdictions internationally. It was rated as the top offshore jurisdiction in the most recent Global Financial Centres Index (above Guernsey, the Isle of Man, Malta, Gibraltar, Cayman and the BVI). It also has a high standard of regulation, with its regulator – the JFSC – considered to have one of the best reputations of any jurisdiction.
In summary, Jersey is prepared and well placed for its insurance industry to prosper in the coming years, being able to offer a flexible, yet well regulated approach to any insurance structure wishing to take advantage of the Island’s benefits.
Whilst marketing its strength and tradition, the Island is also innovative. Jersey was the first International Finance Centre to pass legislation in 2006 to introduce the concept of an Incorporated Cell Company (ICC) – alongside an enhanced version of the traditional Protected Cell Company (PCC). Within an ICC the cells are separate legal entities and can invest in and trade with one another. There is also the potential for cell owners to obtain a rating for their individual cell.
Although a cell is not a separate legal entity in its own right, it is treated as separate, ring-fenced companies with its revenue streams, assets and liabilities all kept separate from other cells and from the core. Each cell is only liable for its own debts and not for the debts of any other cell within the company. The cells will be accounted for like individual companies, each with its own technical account and balance sheet. They will have their own separate contracts, income, expenses, assets and liabilities.
THE PCC STRUCTURE A Protected Cell Company (PCC) is an innovative structure that can open up captive insurance opportunities for a wider market. A PCC is a corporate body, established under specific legislation that can be segregated into legally distinct portions known as the ‘core’ and underlying ‘cells’.
The core is required to hold a minimum guarantee fund and the net admissible assets for the core plus those of all the individual cells must exceed the minimum required margin for solvency at any point in time. The core is, therefore, in place to help the individual cells to meet solvency requirements without them each necessarily having to finance the full minimum capital requirements
Richard Packman Richard Packman is Chairman of the Jersey International Insurance Association. He is also Managing Director of Jersey’s first specialist insurance management firm, Vantage Limited. Richard is a professionally qualified insurance practitioner with over 25 years experience in the insurance market. Initially trained as an underwriter, he later worked for various established insurance brokers in the UK before moving to the Channel Islands in 1999. He holds a number of directorships in Jersey companies and captive insurance structures.
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LEGAL SYSTEM & SERVICES
Without prejudice but with confidence By Neville Benbow
Jersey is justifiably proud of its position as one of the world’s leading international finance centres. It is a status that has taken many years to achieve yet requires constant focus and effort to nurture and protect, as well as to develop and adapt in line with changing market circumstances and international demands. There is much to be said for Jersey’s history of financial stability and security but for it to maintain its standing internationally and to retain a competitive edge in a dynamic and ever-changing world, it needs to have a sound political environment, an effective regulatory structure and a robust yet flexible legal infrastructure that, collectively, gives confidence to investors, residents and the international community, is conducive to business and operates in line with international standards and expectations. While it is clear that Jersey enjoys a political, regulatory and legal landscape that enables it to maintain its status in the premier division of international finance centres, it is important to recognise the role that key stakeholders have in achieving and maintaining this positioning. Arguably one of the major contributors in this respect is the part played by Jersey’s legal profession. While it is a profession that is steeped in tradition and heritage, it has adapted to Jersey’s needs and aspirations, acting and reacting to market trends and opportunities and has been instrumental in helping Jersey to attract business both locally and internationally, providing effective and 84 • Jersey - First for Finance
Images Courtesy Chris George
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flexible support for new streams of business activity and revenue for the Island. With legal expertise spanning the entire spectrum of banking, corporate finance, trust, fund, property, personal and offshore law, lawyers in Jersey play a critical role in establishing and maintaining Jersey’s position as a jurisdiction of trust and integrity that is fit for the business world of the 21st Century. The legal profession in Jersey is immensely proud of its contribution to the Island and its role in sustaining existing business streams while securing new business opportunities, underpinned by legislation that members of the profession have been instrumental in creating, ensuring that the confidence of investors is maximised, whilst ensuring that international standards are met at all times. As the statutory regulatory body for Advocates and Solicitors of the Royal Court of Jersey, The Law Society of Jersey has a key role to play in representing the interests of its members, helping to shape the legal frame-
work, supporting its members in the practice of law and in upholding the highest standards of professional conduct. In addition, the Law Society is the guardian of the legal aid system in Jersey which, uniquely, is funded by lawyers themselves and not, as in other jurisdictions, by the Government. All Jersey Advocates and Solicitors are obliged to provide free or subsidised legal assistance for 15 years following their qualification in Jersey. This makes a material contribution which is worth millions of pounds to the people of Jersey, providing access to justice to those who would not otherwise be able to afford legal representation. With over 300 Advocates and Solicitors, Jersey may have more lawyers per head of population than in the UK but this is reflective of the diverse and specialist nature of Jersey’s operating environment and business mix. It is an Island that is truly open for business and – certainly from a legal perspective – has the right people, with the right expertise, to keep Jersey where it belongs, at the top of the premier division of international finance centres.
Neville Benbow Neville Benbow is the Chief Executive Officer of The Law Society of Jersey, the statutory regulatory body for Advocates and Solicitors of the Royal Court of Jersey. Neville joined the Law Society as its first full time Chief Executive Officer in March 2013 after a successful financial services career in Jersey and the UK spanning over 30 years. Neville is responsible for the effective day-today management of the Law Society, promoting and upholding high standards of professional conduct across the profession, while representing the interests of members and promoting the practice of law in Jersey. He is a Fellow of the Chartered Institute of Bankers and holds a Masters degree in e-Commerce. He is a Trustee and Treasurer of The Shelter Trust in Jersey.
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ASSET RECOVERY
Taking action on asset recovery By Stephen Baker
The critical importance of successful fraud litigation and asset recovery is often overlooked when assessing the efforts made by Jersey to demonstrate that it matches – and often surpasses – international regulatory standards and operates as a robust financial centre. Fraud litigation, by its very nature, is perceived as a last resort and the consequence of a failure to meet supervisory standards. How then can the significant amount of work undertaken by Jersey advocates in both the criminal prosecution of fraud and the civil recovery of misappropriated assets be perceived as of benefit to the finance sector as a whole? Historically Jersey has sometimes erroneously been described as a ‘safe haven’ in which to secrete misappropriated assets; not infrequently sovereign funds criminally obtained by corrupt regimes and placed into various investment or trust structures. It is of course false to assume that these structures are impenetrable or that any effort to recover those assets by the legitimate owners will be stymied by Jersey’s label as an offshore centre. In reality, Jersey has a legal system which is designed to provide proactive criminal and civil international cooperation in cases of suspected fraud. Equally as importantly, it has a robust Court which not only enforces the legislation which is on the statute book but is also prepared to try complex (and often unique) cases of fraud. Moreover the Court is not shy in applying cutting edge legal principles to ensure proper remedies for the victims of fraud. The Royal Court has for example recently delivered a leading judgment in the common law world on the proper principles of tracing stolen assets. The Court has repeatedly stated that it will take such steps as are necessary to ensure that victims of fraud have proper redress and has shown that it is unwilling to allow this area of law to stagnate, or to be wrong-footed by the increasingly 86 • Jersey - First for Finance
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intricate methods applied by fraudsters to disguise the ultimate source or destination of funds. In light of the Prime Minister’s letter to Crown Dependency leaders ahead of the UK’s presidency of the G8 Summit in June 2013, at which tax evasion and aggressive avoidance figured highly on the agenda, and further the announcement by the States of Jersey of the establishment of an Asset Recovery Task Force to coordinate Jersey’s activity as part of an international effort to identify and repatriate funds linked to Arab spring jurisdictions, it seems clear that Jersey intends to continue working at the forefront of the policing of international financial crime. THE ASSET RECOVERY TASK FORCE In March 2013 an Asset Recovery Task Force was established in order to coordinate Jersey’s activity as part of an international effort to identify and recover illicitly obtained assets linked to Arab spring jurisdictions. The Task Force comprises members of the Law Officers Department, the Jersey Financial Services Commission and the Joint Financial Crimes Unit, the financial wing of the Jersey police. It was established as a result of Jersey’s on-going participation in an international forum dedicated to assisting Arab spring jurisdictions with their asset recovery efforts. It would not be too far a leap of faith to imagine that the task force’s remit will be extended to other jurisdictions in due course. Ian Gorst, the Chief Minister, commented that: “The establishment of our own task force shows how serious we are about assisting other governments with asset recovery. A particularly high-profile example of this was the Abacha case in 2003 when Jersey worked with the Nigerian Government, the US authorities and countries across Europe to repatriate $160 million of Jersey-held assets to the Nigerian authorities.” Jersey’s response to the Abacha case substantially enhanced Jersey’s international reputation as a financial centre which is prepared to accept responsibility for the misuse of its financial service industry even in the most exacting circumstances. I had the privilege of leading the prosecution team
Right: Jersey’s Chief Minister, Ian Gorst.
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ASSET RECOVERY Courtesy Chris George
on behalf of the Attorney General, in what still is the largest scale international asset recovery action in which Jersey has taken part. The case benefited from a pragmatic approach by the local investigatory authorities based upon an acceptance of international responsibility by Jersey to deal with money laundering through the Island. There was careful investigation by experts, the establishment of personal relationships with lawyers in many jurisdictions so as to ensure full and proper international cooperation and the intention of all involved to actively seek solutions, not problems, to the multiplicity of issues which arose. The case also benefited, as many of this nature do, from good luck. In this case the Abacha family simply did not anticipate the investigation and prosecution taking place in Jersey. It was also a watershed moment for Nigeria, which had not expected any success against a seemingly untouchable military leader. Jersey’s lead meant that other jurisdictions were encouraged to follow. Jersey remains at the forefront of international asset recovery, not least in the case of Federal Republic of Brazil v Durant & Others, in which this firm acted on behalf of the government of Brazil to recover funds misappropriated by the former Mayor of Sao Paulo, Paulo Maulf. This was the first civil asset recovery action by the country’s government outside of its own jurisdiction. RECENT DEVELOPMENTS IN CASE LAW In Federal Republic of Brazil and Another v Durant International Corporation and Another [2012] JRC 211 the Plaintiffs sought recovery of monies (in the principal sum of $10.5 million) from the Defendant companies on the basis that, inter alia, they had received property with knowledge of its tainted origin. The question of crucial importance for the Royal Court was therefore whose knowledge could be attributed to the acts of the Defendant Companies. The Court found that where the acts or omissions in question are those of someone who is as “intimately associated with the ultimate ownership and control of the company as Paulo and Flavio Maluf” (Paulo’s son), there “could be no room for doubt” as to whose knowledge should be attributed to Durant and Kildare. The court looked at the reality of who controlled the companies not simply who formally held the directorships. The flexible and realistic approach adopted by the Royal Court in the Brazil case shows that the judiciary in Jersey will look to the substance of dealings rather than their pure legal form.
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THE FUTURE The Jersey law of fraud and asset tracing has developed rapidly through the considered and pragmatic judgments of the Royal Court and Court of Appeal; leaving Jersey not at the mercy of fraudsters or those who would misuse financial vehicles for illicit purposes but as a stronger and more proactive jurisdiction than its competitors.
The judgment serves to highlight the Jersey Royal Court’s established practice of looking beyond the articles of association and basic rules of company law to ascertain who truly exerts control over corporate structures. Further, it has the potential to prevent wrongdoers who are “intimately associated with the ultimate ownership and control of the company” from exploiting such entities as a means of distancing themselves from illegal transactions, thereby allowing companies used for the purposes of financial crime to escape liability for claims in knowing receipt. The decision in the Brazil case also had a significant impact upon the rules regarding the tracing of assets both in respect of tracing through a maelstrom (that is through several accounts in which the funds were mixed with those not related to the fraud) and by introducing the concept of backward or ‘reverse’ tracing to the tools that can be applied in Jersey fraud cases.
the Jersey Courts have adopted a principle and will seek to establish whether the facts support this principle. The Court will not restrict itself to predetermined requirements in order to uphold a tracing claim. It is to be anticipated that the English higher courts will follow Jersey’s lead when the opportunity arises. How the principles which the Brazil case established will be applied in circumstances where the Court has to consider competing claims of secured and unsecured creditors or those with mere personal as opposed to proprietary claims against the wrongdoer, remains to be seen. Whatever the outcome of such future cases, the law of Jersey in respect of tracing has now evolved and is distinct from that of the UK and other common law jurisdictions. Indeed, Jersey now leads other common law jurisdictions in relation to such matters.
The judgments of both the Royal Court and Court of Appeal provide clear statements of intent to the effect that in order to do justice between parties the Jersey courts will not burden themselves with the complex conceptual restrictions which have and continue to burden the approach of the UK courts to matters of tracing.
Jersey’s attitude to fraud litigation and asset recovery has clear benefits to the financial services industry. First, fraudsters and other criminals should be deterred from using Jersey’s financial services. Second, investors using the Island’s financial services industry should be comforted that if something should go wrong there is a robust judicial system which will ensure proper redress. Third, by giving real teeth to the legislative framework, the wider international community will also see that there is real intent by the authorities and the legal profession to comply with international standards. Ultimately, this should be a source of competitive advantage in an increasingly competitive and scrutinised offshore financial centre market.
Stephen Baker Stephen Baker is an English barrister and Jersey advocate. He is senior partner at Baker & Partners. He specialises in asset recovery actions, particularly those involving political corruption and the unraveling of offshore structures.
Instead the Court will look to what “accords with the justice [of the case] and good sense”, the Court considered that to do otherwise would “confer on any sophisticated fraudster the ability to defeat an otherwise effective tracing claim simply by manipulating the sequence in which credits and debits are made to his bank account”. Most importantly, as the Court of Appeal judgment makes clear, there is no limit to the ways in which – as a matter of evidence – an aggrieved party may demonstrate the necessary link between his property and that which is in the hands of the wrongdoer. In other words,
It is inevitable that financial services businesses will have to, at some stage, deal with fraud and criminality. While the prospect of litigation or encountering fraud remains uncomfortable for professional services firms or international investors, they can rest assured that Jersey remains at the forefront of combating international financial crime and ensuring that the reputation and integrity of the Island are second-to-none.
He is frequently instructed by foreign governments in asset recovery actions. In recent years he has acted for the governments of Brazil, Pakistan, and the Kenyan Anti Corruption Commission. He is expert in the interaction between the civil and criminal law in fraud cases. Courtesy Danny Evans (Jersey Tourism)
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Accounting for rapid change By Andy Isham
Considering the nature of the Island’s historical special relationship with the UK and the international focus of the majority of the Island’s finance business, these recent changes can only be welcomed in reinforcing the stability that the Island offers in its activities in a time of economic austerity and government and regime change in many countries. Tax and accountancy professionals in Jersey have been at the forefront of the discussions and are also assisting with the implementation of the raft of EU and international legislation plus currently FATCA both for the US and
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UK, being heavily involved in areas in which assistance for planning and implementation are key. Jersey has been in the vanguard of the international agenda and currently has signed 31 Tax Information Exchange Agreements with 12 more initialed – or agreed for signing – and others where negotiations are well advanced with drafts exchanged. As a profession we are keen to contribute to the education and debate on tax neutrality and wealth creation and continue to counter many of the myths held about an International Finance Centre and any political spin or interpretation that may be presented. As an Island and also as a profession, we have always welcomed the opportunity for a level playing field between jurisdictions. The debate on tax avoidance has moved on considerably and there is a continual focus on the extent to which structuring is considered overly aggressive. This is a focus for professionals in practice as well as ensuring a position of tax neutrality from opera-
Courtesy Chris George
It would be fair to say at times that I have seen more change in the last 18 months than I have in the last 18 years when it comes to the debate on tax avoidance and tax planning. With the recent G8 announcements and the recent FATCA equivalent discussions with the UK government there has never been more inspection of the position adopted by jurisdictions and the position of compliance with international standards.
tions within the Island. The use of the Channel Islands Stock Exchange (CISX) as a listing location for – amongst others – real estate investment trust structures formed under a Jersey vehicle, is an example of how Jersey tax neutrality is beneficial in having an effective and well understood structure. There are many areas on the current issues list which are not just a result of tax considerations and the austerity reactions from governments in seeking to reduce budget deficits.
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The G8 leaders sit down for a working dinner to discuss foreign policy at the G8 Summit, Lough Erne, 2013. Crown copyright
The veritable tsunami of regulation from both the EU and various international bodies are areas on which the impact, reaction to, and development of solutions for, are all a key part of the work being undertaken by professionals in the Island. The longer reaching impacts of Basel III – and for UK banking groups the impact of the Vickers proposals for ring fencing of banks – continue to come under review and scrutiny. There has been and continues to be considerable focus on AIFMD and the impact on both fund vehicles themselves and the managers of these entities. We have in Jersey experienced professionals who can ensure compliance with the requirements, implementation under the new guidelines and views on the challenges offered. With the new compliance regulation that is being implemented to meet requirements such as AIFMD, there is a stable platform that the Island can offer for fund managers in a well regulated and stable environment. From a local Jersey perspective, balancing the budget and the balancing of the EU directives and code of conduct to have a proportionate, compliant regime, remain a key focus. We have seen in the tax debate in the UK and other countries the issues that arise – with the significant com-
plexity that tax rules and rule books provide – and Jersey’s relatively straight forward system on rates and rules, with general anti-avoidance rules in place which offers a good platform. There continue to be challenges around the debate on foreign non finance companies and how they contribute to the overall tax take and a review of other options including deemed rental provisions. Overall the system should remain one that provides simplicity and ease of use and understanding which the local profession in Jersey has supported through comment and feedback where any proposals appear unnecessarily complex. It is the international debate and focus that remains top of the agenda in positioning the Island against the backdrop of change. In all of the moral debate that is now on the agenda of evasion versus avoidance and the spotlight on offshore centres, the continual focus that we have adopted in negotiating international agreements and compliance with the highest anti-money laundering requirements over many years, should be remembered. The Island has been at the forefront of this and will continue to do so, with the desire for a level playing field for all comparable jurisdictions being an essential requirement.
Andy Isham Andrew Isham is the President of the Jersey Society of Chartered and Certified Accountants (JSCCA). Andrew is also a partner in the Jersey office of Deloitte and alongside his audit partner responsibilities leads the Reorganisation, Forensic and Regulatory Services team. He has extensive experience in offshore markets specialising in banking, trust companies, and fund management. In addition to the provision of audit services, Andrew has acted as engagement partner on a number of appointments carried out on behalf of the Jersey Financial Services Commission, on reporting accountant engagements involving financial institutions anti-money laundering controls and the provision of advice to regulated entities on the adequacy and effectiveness or their compliance procedures. Andrew is Deloitte’s representative on the Jersey Regulatory Auditor Group. aisham@deloitte.co.uk.
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Connect with us. Introducing Sure International.
WĂƌƚŶĞƌƐŚŝƉƐ͕ ƌĞůĂƟŽŶƐŚŝƉƐ͕ ĂĸůŝĂƟŽŶƐ͘ tŚĂƚĞǀĞƌ LJŽƵ ĐĂůů ƚŚĞŵ͕ Ăůů ĐŽŵƉĂŶŝĞƐ ŶĞĞĚ ŐŽŽĚ ĐŽŶŶĞĐƟŽŶƐ͘ tĞ͛ǀĞ ŵĂĚĞ Ă ŶĞǁ ĐŽŶŶĞĐƟŽŶ Ͳ ǁĞ͛ǀĞ ďĞĞŶ ďŽƵŐŚƚ ďLJ ƚŚĞ ĂƚĞůĐŽ 'ƌŽƵƉ͕ Ă ĐŽŵŵƵŶŝĐĂƟŽŶƐ ĐŽŵƉĂŶLJ ǁŝƚŚ Ă ŐůŽďĂů ĨŽŽƚƉƌŝŶƚ ĂŶĚ ǀĂƐƚ ĞdžƉĞƌƟƐĞ͘ KƵƌ ŶĞǁ ŐƌŽƵƉ ƐƚƌƵĐƚƵƌĞ͕ ĐŽƵƉůĞĚ ǁŝƚŚ ůŽĐĂů ĞdžƉĞƌŝĞŶĐĞ ĂŶĚ ŬŶŽǁͲŚŽǁ͕ ŵĂŬĞ ƵƐ Ă ƉĞƌĨĞĐƚ ĐŽŶŶĞĐƟŽŶ ĨŽƌ LJŽƵƌ ĐŽŵƉĂŶLJ͘ ŽŶƚĂĐƚ 'ĂǀŝŶ WƌŝĐĞ ŽŶ 01534 888291 Žƌ ĞŵĂŝů business@sure.com
www.sure.com
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Jersey’s digital revolution By Ted Ridgway Watt
The impact of technology has seen evolutionary progress to all business sectors throughout history but, since the industrial revolution, has increasingly proven transformational. Digital technologies have, over the last 40 years, enabled huge advances to information acquisition and processing. Some of these are evolutionary – such as the everincreasing density of computing power and storage – and others are transformational. The World Wide Web has barely celebrated its 21st birthday and yet has revolutionised the way we interact with people and transact with businesses. Facebook has done in just eight years what the CIA failed to do in 66 years – to find out what a billion people around the world are thinking and doing; ‘Big data’ will help us to live better, to work better and has the potential to reduce our impact on the world’s natural resources through the optimisation of the movement of people and goods. The barrier to market entry for new business may be low but the underlying communications infrastructure is critical and this is where Jersey can stand tall. For a small jurisdiction, we have a strong supplier base, both for fixed and mobile communications. Once the Gigabit Jersey project is complete, the on-Island and off-Island data capacity will be world-class in terms of bandwidth and unique in terms of ubiquity. The availability of high speed wireless connectivity in 2014, with the roll-out of 4G networks, will make this Island a great place not only to conduct data-centric business but also to develop new enterprise. Digital Jersey became operational on 28th January 2013 with the aim of growing the digital sector in the Island. This entails capability building, capacity growth and Jersey - First for Finance • 93
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innovative services. Capability building will entail working with the education sector to create a talent pipeline for future employment in the Island. Capacity growth is about establishing a culture of ambition and collaboration amongst Jersey’s businesses and entrepreneurs, ensuring that the ecosystem is supportive in terms of policy, regulation and investment. Innovative services will be those defined by Jersey’s competitive position. That competitive position will play to Jersey’s strengths its strong reputation for fund administration, its agility as a small jurisdiction and its high degree of social capital. Whilst defining this position requires a rigorous process of benchmarking, formulating and testing hypotheses, the pedigree of the financial services sector is likely to provide Digital Jersey with some clear early opportunities to develop new ideas and to encourage new enterprise. We will be working with the Island’s financial and fiduciary businesses to explore innovative products, which could further enhance Jersey’s offerings off-Island and elevate its reputation in these sectors. This activity will include developing new investment products for tech start-ups. However connectivity is not the sole ingredient to digital growth; social capital, legislation and regulation are three key ingredients to a successful ecosystem. The growth of Silicon Valley and the recent emergence of London’s Tech City were predicated on these vital elements, encouraging the fostering of talent and supporting new enterprise and business practices. Social capital is a strong part of Jersey’s business environment and is an empirically proven factor in the longterm success of localised clusters of excellence. With around one quarter of employees working in the financial services sector in the Island, human connectivity is as influential as its communications network. Appropriate regulation and legislation can position well for competitive advantage and Digital Jersey will be seeking to identify those which stand to exploit the Island’s communications infrastructure; areas for consideration are data protection and telecommunications test environments, both of which could offer first-mover advantage to businesses based in the Island. The investment in Gigabit Jersey by Jersey Telecom and the acquisition in 2013 of Sure, both contribute to setting the stage for exciting times ahead for telecommunications in Jersey, creating an infrastructure which is already gaining the interest of companies around the world who wish to develop new global services, using Jersey as a showcase. The high bandwidth of the Island’s networks
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have a capacity for significant growth in the digital and financial service sectors and there is a supportive business community ready to engage in the development and delivery of innovation in fields such as data administration, retail and e-commerce services, e-Health and energy management. Being a small jurisdiction has its advantages but there are some real additional costs associated with being an Island. The capital and operating costs of Jersey’s fixed telecommunications infrastructure are elevated by the additional cost of undersea cables and associated connection with off-Island service providers. Digital Jersey will work with the regulator and telecommunications service providers to ensure that the high capacity networks provide a competitively-priced platform for innovative service provision, both by existing businesses and by new enterprises. Jersey is poised to take advantage of its world-class communications infrastructure to complement its strong position in the financial services sector. The bold decision to equip the Island with gigabit capacity fibre-optics to every dwelling and business will not only give existing enterprises a stronger communications platform but also present opportunities to demonstrate new technologies to the world. However we are not alone in the race to find a competitive position in the ICT sector and consequently must play to our strengths to grow Jersey’s digital sector, with Digital Jersey and Jersey Finance working closely together for the benefit of all.
Ted Ridgway Watt Ted Ridgway Watt is the Chief Executive Officer of Digital Jersey Ltd, which was launched in January 2013. Prior to this he worked as a senior technology advisor to UK Trade and Investment, creating the strategy and support for London’s Tech City. He has previously held posts with the UK Ministry of Defence and BAe Systems. Ted was educated at Cranleigh School and Bristol University and is a Member of the Institute of Physics, the Institute of Engineering Technology and the Institute of Directors.
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First for global partnerships By Graham Hughes
Connectivity is crucial to Jersey’s finance sector. Over 40% of the Island’s economic activity is generated by the industry and the Island’s position at the top of international league tables is underpinned by effective, worldclass, global communications. Jersey’s situation as a key international finance centre is not without its challenges. First, there is the issue that it needs to overcome on a daily basis – it is an Island that needs to be kept in constant contact with the rest of the world if it is to maintain its position as a reputable and efficient international business and finance centre. If Jersey is to continue playing an important role within the machinery of global financial systems it can only do so because its communications infrastructure is robust, resilient and most importantly, reliable. Second, a multitude of political, economic and competitive pressures are being brought to bear on the Island’s finance sector, requiring Jersey to look further afield than it traditionally has in order to find new markets in emerging economic regions such as the Middle East & North Africa and the Far East. At Sure, we are keenly aware of the need to keep Jersey connected and are proud to play a key role in doing so.
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Our off-Island links are fast, diverse and have ample capacity to carry the terabytes of information that are sent to and from the Island.
Courtesy Chris George
We have also built an Enterprise Network Team that is dedicated to working with clients to ensure they have the means to operate locally or globally. No matter what the size of business or how quickly it wishes to grow, the Network Team works with the business over time to ensure it has the right network for its circumstances. Whether you are involved in trading and ecommerce, which requires up to the second information and decision making or you are focused on the security, adaptability and reliability of your communications infrastructure, our Network Team can provide the complex networks and systems that ensure your means of communication are fast, robust and resilient. Perhaps most importantly, our team never delivers off the shelf solutions, instead they work with you to understand your business inside out, and design your network specifically for you. CHOOSE YOUR PARTNER WISELY The need for businesses to have resilient global networks makes the choice of communications partner extremely important. As organisations build a global footprint, they need to be confident they are working with the right people and should choose a company that has the expertise and the global reach to design, build and most importantly, to maintain infrastructure that needs to be working 24/7, no matter where in the world the company has its bases. Headquartered in Bahrain, our new parent company, Batelco Group, is a global communications business operating in 17 jurisdictions on four continents. This new structure helps us deliver local solutions backed up with the global knowledge and resources that companies located in Jersey need to succeed. Importantly for Jersey, Batelco has vast experience of doing business in the Middle East and Africa, key areas in which the Island is looking to increase its presence. BUILDING FOR THE FUTURE At the heart of the communications industry is its ability to deliver high quality, extremely functional networks that enable your business to reach far beyond its home base. However, as we deliver today, we are also looking and building for the future. In Batelco, we have a parent that strongly believes in both innovation and customer care as the foundation stones
of the communications sector. This makes us ideally positioned geographically to support Jersey’s finance industry in its search for new markets and with a strategic objective to continue its growth through acquisition, Batelco could become Jersey’s perfect partner as it ventures further into emerging markets. As the digital economy grows, Jersey is well placed to provide digital services to businesses and consumers wherever they are based. We at Sure remain focused on delivering communications and networking expertise in Jersey, bringing quality of service and technological innovation to local businesses. Companies working in, moving to or doing business in Jersey, can expect to receive the highest levels of service and skills based upon a foundation of global, world-class communications expertise, helping the Island adapt to a constantly changing world as Jersey prepares for tomorrow.
Graham Hughes Graham Hughes is Chief Executive of Sure Jersey. Graham was born in Jersey and following a career in Aeronautical Engineering with the Royal Navy, returned to the Island working as Senior Company Officer for Reuters in Jersey, Guernsey and the Isle of Man. He joined Sure in 2004 for the launch of Sure’s Jersey operations and leads the firm’s commercial, operational, sales and revenue strategy in the Island.
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Cloud security By Tim Ringsdore
Imagine your business without core communications â&#x20AC;&#x201C; no email, no access to files: no mechanism to access client data and without vital up-to-date information from the outside world. Half a century ago these were issues for a legion of backoffice clerks and endless shelves of dusty ledgers and files. However, things are very different nowadays as information is widely recognised as a companyâ&#x20AC;&#x2122;s most important asset and now more than ever, having reliable systems is essential. However as the demand for reliability accelerates, so too, potentially does the cost of protecting, managing and storing that data. In addition to the ever evolving technological environment, there has also been a separate and equally significant change in the economic environment; we are five
years into the deepest recession for many years, affecting virtually every business sector. All businesses, from the smallest to the largest are therefore under pressure to reduce overheads while still retaining and delivering profitability for the business. Even though the majority of businesses have already implemented efficiencies, such as virtualisation in order to help streamline their operations, they continue to look for other ways to create a leaner, fitter business model that will maximise efficiency. JT like most other businesses has also been affected by the economic environment too and we ourselves needed to consider how best we protect the future of our company and staff to continue to deliver value back to the Island. Which is why last year we introduced an ambitious five year growth strategy with the aim of not only expanding our global reach and services but which
importantly was also designed to shape our business to ensure we can continue to work with our customers to help drive down their operational costs as well. It is critical that we work with them to take a strategic approach, thus securing the future growth of their own businesses too. A key part of this forward thinking approach was the recent acquisition of the London based managed services company, Worldstone, in August 2012. Through this successful acquisition we are now able to expand the services we offer to our local customers, giving us the capability to support clients with their IT requirements on a global scale through our alliance of over 100 worldwide partners. This means we can genuinely provide end-to-end-services; from fibre installation to connectivity, to physically placing the telephones on the desks with the additional capability to then proactively manage and monitor those services 24x7x365. We have also
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bought a wealth of knowledge and experience about providing services to the global business community back to the Island, in order to effectively help our customers to introduce the efficiencies that will ultimately help them to meet their cost reduction objectives. This broadened portfolio now means we can further help our customers increase the effectiveness of their own internal operations, such as collaborating on centralised services. For instance; a single contract, a dedicated global helpdesk and a single service-level agreement that covers everything from comprehensive audits of IT systems and processes, to service and systems design and delivery as well as on-going support. In fact we are already providing these services for customers here in the Channel Islands and for those customers with operations around Europe, Singapore, Caribbean and the USA. Working closer with our corporate clients – of all sizes – the results have provided dramatic and tangible cost reductions for their businesses. This also means, once an appropriate supplier model and core operational approach has been taken care of, our customers are then in a position to review other services that can be utilised to maximise these efficiencies even further. That is why we continue to develop our own products and services in line with client demand as we know that businesses are being asked to do ‘more with less’. In addition, the pressure on IT teams to maintain business as usual and focus on strategic activity can sometimes be a stretch too far. Some of the key points raised by our clients have focused on how JT can help take on more of their IT requirements and responsibilities, to allow them to focus on their core business. In doing so, we also help to reduce capital expenditure and IT budgets, while ensuring that they have access to a workforce with the highest standards of expertise, knowledge and creative solutions.
An example of one such solution is to set up a flexible shared IT environment through ‘The Cloud’. Essentially it means your critical systems, data and programmes are all hosted online rather than in your own premises whilst still enabling your staff to be able to access them from anywhere, at any time. Not only does this address the issues of reliability and security, the systems will be hosted in the most technically advanced Data Centres in the Channel Islands. It also means your IT staff can be focused on making improvements in operational efficiency rather than spending time on mundane day-today tasks. In the very early days of Cloud technology, there were concerns about security with some providers being accused of over-selling storage capacity which led to a general wariness about the underlying technology. To address this, JT has conducted a thorough process of due diligence into these emerging technologies over several months to ensure that any solution we deliver meets our customers’ demands regarding data protection, security, resilience and cost. Importantly, we host them right here in the Channel Islands where we have significantly invested in our Data Centres in order to provide a network of dedicated resilient hosting facilities across the Islands. Nevertheless, should our clients require a Cloud service outside of the Islands the solution we have chosen is flexible enough to provide this on a global scale. However, we accept that not all of our customers want to put 100% of their systems into ‘The Cloud’ and agree it may not be the best solution for every customer. As such,
JT’s Cloud platform offers customers a choice between a shared or private solution and also allows them to determine the level of control they want to retain for their IT infrastructure and data to ensure it is completely tailored to their needs. Once this important decision has been made, JT will then work collaboratively with customers to migrate them to the platform where they will benefit from the highest quality local facilities with unrivalled global connectivity. For some long-standing clients, JT acts as a trusted advisor for every aspect, from simple telephony through to global data networks and managed services. In almost every case, that partnership is the result of years of shared knowledge and experience, from which flows mutual trust and respect. We have been a core function of the Island’s community for more than 120 years and we are increasingly relied upon by the Island’s business community as well. Every time we work with an organisation we too learn and grow, with the subsequent lessons learned allowing all of our clients to leverage that expertise to enable them to meet their cost reduction objectives which will enable them to concentrate on what they do best – focus on their clients, and their business.
Tim Ringsdore Tim Ringsdore is Managing Director, Global Enterprise - JT Group Ltd. Tim joined JT in 2000 as Head of Product Development, which was a new department set up to develop new services ahead of competition. After two years in this post, Tim successfully repositioned the company. In September 2005 Tim became the Sales and Marketing Director for the JT Group and in 2009 Tim was appointed Managing Director of the Global Enterprise Division with a mandate to grow new business from outside of the Channel Islands. Tim was educated at St Helier Boy’s school and after leaving school he worked at Channel Television for 24 years, working his way up from Cameraman to Head of Production. Tim is a member of the Chamber of Commerce and the Institute of Directors.
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Why your wealth manager should never stop
managing your portfolio. The issue with investment opportunities is that they rarely stay opportunities for long. 5PP PĹ?FO POF CMJOLT BOE UIFZĂ WF HPOF Which is why we at UBS believe in proactively managing your portfolio. It means your client advisor will seek out new investment opportunities, based on the latest market developments. And regularly review your portfolio, balancing BOE PQUJNJ[JOH JU BDDPSEJOH UP ZPVS SJTL QSPĹ&#x2013;MF But one thing remains constant throughout all of this. 0VS DPNNJUNFOU UP NFFUJOH ZPVS Ĺ&#x2013;OBODJBM HPBMT "OE UIBUĂ T TPNFUIJOH XFĂ MM OFWFS TUPQ EPJOH
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UBS AG Jersey Branch 24 Union Street St. Helier Jersey JE4 8UJ 01534 701 000
We will not rest www.ubs.com
UBS AG, Jersey Branch is regulated by the Jersey Financial Services Commission for the conduct of banking, funds and investment business. Terms and conditions are available upon request. Š UBS 2013. All rights reserved.
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