LB144 Offshore p66-75
26/4/04
6:37 pm
Page 67
Offshore focus: Bermuda, BVI, Cayman, Guernsey and Jersey
Continental drift The recent offshore law firm mergers have re-ignited the debate surrounding the need for multi-jurisdictional capability.
IT WAS ONLY A MATTER OF TIME. THAT time has now come. On 2 February 2004, the fight for supremacy in the offshore legal market moved into round two. The merger of Jersey-based Ogier & Le Masurier with Cayman Islands firm Boxalls re-drew the battle lines, producing the first transatlantic offshore practice.
Legal Business analyses the arguments for and against
The resultant 370-strong Ogier & Boxalls, as the firm will be known in the Cayman Islands, is the first practice to span the leading European and Caribbean offshore markets of Guernsey, Jersey and Cayman. While multi-jurisdictional capability is not new to the offshore world – Conyers Dill & Pearman and Maples and Calder, among others, have expertise beyond their home bases – the merger will have some asking whether organic growth is enough. Certainly, rumours abound that the other leading Caribbean firms are soon to roll out plans for major European expansion. ‘Each time it happens, the merger idea moves back up a few notches on partners’ agendas,’ Ozannes partner Robert Shepherd acknowledges.
MAIREAD KEOHANE AND ALAN LAMB
Trendsetter It’s no great surprise that Ogier is pioneering this development: the firm was also the first from Jersey to expand into Guernsey in 1999 and then set up in London in 2003. Ogier chairman Jonathan White believes the link-up marks a tellling sign of the
times. ‘This merger marks a shift, as those doing international work have come to realise that if they are going to do it and do it well, they need to be bigger and to provide the in-depth services the very large London and New York firms expect of them,’ he explains. ‘We need to be able to provide services in more than one jurisdiction.’ The Ogier move was followed last month by the merger of Bermuda-based Appleby Spurling & Kempe with Cayman firm Hunter & Hunter, to create Appleby Spurling Hunter. For Appleby group managing partner Peter Bubenzer, the thinking was simple. ‘We had good experience and a good reputation in Bermuda, and we thought we could leverage off that in other jurisdictions,’ he says. The firm had previously operated referral relationships, but as Bubenzer notes: ‘Those were never adequate for our purposes because there wasn’t full business integration.’ Following on from the move in Cayman,
May 2004 Legal Business 67
>
LB144 Offshore p66-75
26/4/04
6:37 pm
Page 68
Offshore focus
> Appleby will also now set up its own practice in the British Virgin Islands; the firm had previously enjoyed an association with leading BVI firm, Harneys. The mergers have elicited strong views from competitor firms, with several senior lawyers, notably in the Channel Islands, questioning the business rationale for the move. Jersey-based Bailhache Labesse partner Mark Lewis sums up this side of the argument. ‘My own feeling,’ he says, ‘based on our own research, is that at least in relation to legal services, there is no great demand for tie-ups at the moment.’ It is a view shared by Bedell Cristin’s Michael Richardson, who says that he remains ‘unconvinced that the market is looking for (a) larger, and (b) merged, multi-jurisdictional firms offshore’. Both are careful not to dismiss crossborder links out of hand, admitting they will continue to monitor the situation. Mourant du Feu & Jeune’s head of commercial, Tim Herbert, is more positive. ‘From the Jersey perspective, it shows that Jersey legal services can extend beyond the Channel Islands,’ he enthuses. ‘That’s quite exciting.’ Across the Atlantic, the response is mixed. Harneys partner Peter Tarn, based in the BVI, comments: ‘I am still fairly sceptical because I look at it and say, what does the client get from this?’ That said, Tarn thinks it would be naive to believe that the offshore legal market will somehow remain immune to the amalgamations seen within other sectors. ‘People like the idea of one-stop shopping, and every other industry sector seems to be predicated on the idea of some sort of global consolidation,’ he says. ‘I can think of reasons why we are different, but the same was probably true at some stage of industries that now have a high degree of consolidation.’
it right now,’ he explains. ‘But it is in that the underlying intention is to provide a complete service to major clients with diverse needs.’ He goes on: ‘If a client in London gets a good service from Walkers in Cayman because the firm competes locally on expertise, experience and quality of service, and uses, say, Mourant in Jersey for the same reasons, then a combined entity may make sense.’ In responding to the question as to whether this is a client-led move, Ogier’s Jonathan White says that drawing a clear line between what is client-led and what is business development is difficult. ‘We are constantly looking at clients and trying to determine how best we can serve them and build the business,’ he says. ‘Clients and business development are both critical to our strategy – the best way to create new business is to build on and enhance existing business, but also to
‘If you can’t offer clients what they need, they will go elsewhere – you risk losing out to competitors with a broader reach.’ Chris McKenzie, Smith-Hughes, Raworth & McKenzie
Know your client Detractors doubt that the mergers are client-led. ‘If A&O wants to set up an SPV in Jersey does it make any difference that the firm can also advise on Cayman law?’ questions Bailhache’s Lewis. That’s a view shared by Tarn: ‘Clients seldom say to us, “If only you had an office in Cayman.” The reality is that, if they want to deal with us, they’ll push BVI as the location. If not, they can use Maples.’ Walkers partner Ian Ashman takes a more measured position. ‘It’s not client-led in the sense that there’s a huge clamour for
68 Legal Business May 2004
achieve a competitive advantage to provide the highest quality out of the leading offshore centres.’ The clients we spoke to predictably downplayed multi-jurisdictional capability as a major factor in choosing a legal adviser. As one puts it: ‘Am I more drawn to a firm because they span more than one jurisdiction? No.’ That’s the typical response, but clients certainly don’t see it as a negative and can see the potential benefits in having people they know and trust across several jurisdictions. Ultimately, however, clients believe that it’s a business decision for the law firms; most think that it makes sense. As Appleby’s Bubenzer explains: ‘In business you want to hedge your own risk by spreading your business sources and diversifying.’ The experience so far has been encouraging. Ogier & Boxalls partner Peter Cockhill is in no doubt that the merger has brought new opportunities, and points to the number of shared clients that Ogier represents in Europe and Boxalls handles out of North America. ‘There are definite opportunities to cross-fertilise,’ he says.
A firm of two halves White: merging provides a competitive advantage
While publicised as mergers, the tie-ups fall short of what lawyers understand a full law
LB144 Offshore p66-75
26/4/04
6:37 pm
Page 69
Independent Thinking. Solution Driven. Direction & focus for offshore financial services advice Litigation
Capital Markets & Structured Finance
Banking & Corporate
Investment Funds & Private Equity
Trust & Private Capital
Trust Litigation
Employee Benefit Trusts & Share Schemes
Private Client & Local Business Services
Fiduciary Services for Private Wealth Management
Consistently ranked as one of the top law firms in the Channel Islands and highly rated for the professionalism and technical expertise of its partners and assistants, Bedell Cristin provides a fast and efficient service focused on the commercial needs of its worldwide clients and intermediaries. Advocates and Notaries Public PO Box 75, 26 New Street, St. Helier, Jersey, Channel Islands, JE4 8PP. Tel: 814814 Fax: 814815 UK Code: 01534 Int. Code: 44 1534 Email: enquiries@bedellcristin.com Website: www.bedellcristin.com www.bedellcristin.com
ASSURED TRANSACTION HANDLING
As one of Guernsey’s leading full service law firms, Ozannes provides unsurpassed legal advice from a formidable team of specialists, all experts in their particular field. For effective transaction handling – they’re not just the best of the best, but professional advocates and lawyers with the knowledge and experience that’s required. That’s why Ozannes has consistently achieved recognition by being placed in the top tier for Guernsey law firms in legal directories – including each category of ‘The Legal 500’, the definitive guide to law firms worldwide. Those involved in international finance and investment in this leading offshore centre require professionalism. They demand excellence. Ozannes delivers legal excellence, naturally. For more details please visit our website: www.ozannes.com Contact us by e-mail: advocates@ozannes.com tel: +44 (0) 1481 723466 fax: +44 (0) 1481 727935 PO Box 186 1 Le Marchant Street St. Peter Port Guernsey GY1 4HP
LB144 Offshore p66-75
26/4/04
6:37 pm
Page 70
Offshore focus
> firm ‘merger’ to be. Regulations in the various jurisdictions preclude the firms from fully integrating the partnerships on the legal side. But what would prove a headache for a more traditionally structured firm, is less of one for the international offshore firms. Offering multi-disciplinary practices allows firms to work around the prohibition of sharing profits with lawyers not qualified in the same jurisdiction – the hurdle faced by Ogier in its deal with Boxalls. The Channel Islands Bar regulations stipulate that lawyers may not share profits with lawyers not qualified in the same jurisdiction. There is no such provision in Cayman.
Tarn: doubtful about client demand for merged firms
‘I am still fairly sceptical because I look at multi-jurisdictional mergers and say, what does the client get from this?’ Peter Tarn, Harneys Instead, Ogier & Boxalls will continue to operate three discrete legal partnerships in Jersey, Cayman and Guernsey, with the partners in each qualified to practise in the relevant jurisdiction. An overarching structure combines the fiduciary sides of the two businesses into Ogier Group LP, in which all partners will be members. Similarly, Appleby Spurling Hunter has been able to integrate more fully its fiduciary business than its legal, again due to Bar regulations. The legal practices in Cayman, Bermuda and the BVI will remain as separate entities. Both acknowledge some frustration with the regulations. ‘The structure has to fit the various regulations,’ says Appleby’s Bubenzer. ‘But we would go for full, legal integration were it an option – it would make the structure simpler.’ Simple it isn’t, and Appleby sought advice on how to structure the merger. Ogier’s White, meanwhile, would be keen to establish a more unified firm. ‘In an ideal world we would like one group and believe it is important to be one group,’ he says. ‘It enables us to treat our partners as we wish to treat them and ensures that clients receive the best possible service.’
70 Legal Business May 2004
While some latch on to the fact that these aren’t ‘true’ mergers, others are more pragmatic. ‘If the client is getting the service efficiently and cost-effectively, it won’t matter too much to them what goes on behind the scenes,’ says Mourant’s Tim Herbert. Mergers or not, the integration issues remain the same: combined marketing, knowledge management, IT and document systems alignment all have to be worked through. Competitors see this period of bedding down as an opening. As one puts it: ‘They are going to take their eye off the ball for a time while they deal with internal issues – that’s an opportunity.’
One size fits all For some, the mergers reflect the evolution of the offshore market. Guernsey-based Ozannes’ deputy managing partner Robert Shepherd observes: ‘The Ogier merger reflects the strategic direction most firms have been
looking at for a number of years. Unlike in the City, offshore firms not only compete against each other but also between jurisdictions. We have to sell Guernsey first and Ozannes second. Therefore, merger has traditionally been seen as a disadvantage. But for those who may be concerned about the future of their own jurisdiction, it can now be seen as hedging the risk.’ On the surface, the idea is simple: if one jurisdiction is going through a slump, offices elsewhere will hopefully make up the shortfall. But for the firms concluding mergers, the thinking goes further than that. It’s about sourcing and keeping more work, because you can cover the jurisdictions where the client may need advice. The simple fact is that, as the offshore market globalises, so must its service providers. Most lawyers we spoke to acknowledge that traditional distinctions between the major offshore centres are less marked than they were. Sure, Bermuda is best known for insurance, and Cayman may remain some way ahead on the funds side, but Jersey’s recent introduction of its expert funds regime is an attempt to claw back some of the ground it has lost to Cayman over the last decade. Appleby’s Bubenzer points out: ‘The jurisdictions are being pushed in the same direction in terms of disclosure and regulation.’ Such pressure comes largely from international organisations, which have, over recent years, been highly critical of standards offshore. Collas Day partner Ian Kirk in Guernsey says: ‘Each jurisdiction will have its own merits, but pressure from organisations such as the OECD and the IMF will mean that legislation will apply in some way, shape or form across all the jurisdictions.’ Equally, as the pressure to attract new business mounts, a good piece of legislation introduced in, say, the BVI may be copied elsewhere.
A bit partial According to Bubenzer, jurisdictional diversity brings a greater degree of impartiality to the advice as to where to locate a transaction. ‘Before, it was difficult to be dispassionate,’ he says, ‘because if you didn’t get the mandate in one place, you didn’t get it at all.’ Holding on to work was a key driver behind the Ogier move. White explains: ‘A lot of our business comes from international
LB144 Offshore p66-75
26/4/04
6:37 pm
Page 71
LB144 Offshore p66-75
26/4/04
6:37 pm
Page 72
Offshore focus
> law firms. They want to know how to structure a deal, where to do it, and only then do they start to decide which firm to use. So if you create a firm that offers high-quality services in more areas, you can potentially be involved in those deals at an earlier stage.’ Ogier & Boxalls’ Peter Cockhill admits to ‘a Damascene conversion’. He had previously been a proponent of the argument that if you were selling an overseas product, you were selling a jurisdiction, and therefore multi-jurisdictional expansion was inherently conflictual. ‘The game has changed,’ he says. ‘What has been proven is that there is a pre-eminent group of offshore jurisdictions, servicing the global financial centres across various timezones. If you want to be part of that game, this is the way forward.’ Cayman is the obvious first choice for both Ogier and Appleby. A considerable volume of structured funds work is handled in Guernsey and Jersey, but lots of hedge funds work goes to Cayman, so as White says: ‘If we can provide top-quality services across all three areas, it makes us stronger overall.’ Chris McKenzie of BVI firm SmithHughes, Raworth & McKenzie sees merit in this argument. ‘Historically, clients were viewed as your own,’ he says. ‘Now, if you can’t offer what they need, they will go elsewhere, so you risk losing clients to competitors with a broader reach.’
Planning ahead Jersey and Guernsey may be the locations of choice for a lot of European business, but the Caribbean centres do well out of North America and increasingly Asia – that’s the Holy Grail. ‘You can’t ignore the fact that half of the world’s population lives in that region,’ Peter Cockhill says. As far as Asia is concerned, it is the Caribbean firms that have the first mover advantage. Appleby, Conyers and Maples have all been there for some time. Walkers opened in Hong Kong last year and now fields a team of four lawyers, offering both Cayman and BVI advice. Asia is clearly on the minds of many a managing partner. As Ogier’s White confirms: ‘In the next ten to fifteen years, the Far East will be a very important market for everyone. It has to feature in the thinking of the leading organisations.’ Asian expansion may well prove that multi-jurisdictional coverage now is the right move for the future. LB
72 Legal Business May 2004
Pressure on the offshore Financial centres come under scrutiny WE USED TO CALL THEM ‘TAX HAVENS’, but not anymore. After a coshing from the OECD, the IMF and other acronyms with purgative intentions, ‘tax-neutral’ offshore financial centres (OFCs), promising tight regulation and strong supervision, are emerging. Have the OFCs been treated fairly by the international organisations? Are OFCs now in regulatory order? And will they prosper? We asked the experts in the British Virgin Islands, Bermuda, Cayman, Guernsey and Jersey. The Bermuda Monetary Authority (BMA)’s evangelistic supervisor of insurance, Jeremy Cox, won’t use the OFC acronym. ‘There are financial centres, period,’ he insists. ‘Not offshore centres, not onshore centres. Financial centres.’ Richard Walker, deputy director of policy and international affairs at Guernsey’s Financial Services Commission, refines the point. ‘What Guernsey wants to see, and the international financial community is beginning to take this on board,’ he says, ‘is a distinction between co-operative and unco-operative centres, not onshore and offshore.’
A fair cop? Cox and Walker may be right and, if they are, it’s because regulators of their calibre are now in post, setting standards and managing changes to meet international demands. This raises the question: have the OECD, the IMF and the major economies been even-handed? After all, the US harbours fragrant Delaware; the EU’s boundaries contain Andorra, Liechtenstein and Monaco – branded as ‘uncooperative tax havens’ by the OECD as recently as March 2004. Did our five ‘pink on the map’ jurisdictions feel victimised? Probably for diplomatic reasons, responses from regulators were muted. The
brisk ‘Bermuda takes care of itself’ was synonymous with the ‘no comment’ from other centres. Representatives of promotional agencies were franker. John Bridle, chief executive of Guernsey Finance, thought it ‘presumptuous of the OECD to be preaching when their own members were not compliant’, and that the EU needed to cooperate with ‘well-run, wellregulated OFCs that are good neighbours’, rather than drive business where regulation is non-existent. Phil Austin, chief executive of Jersey Finance and an experienced former banker, noted a gradual improvement in onshore treatment of OFCs, ‘because Jersey has learnt that it has to engage in the political process with Western governments to achieve a fair arrangement’. OFCs have also learned that co-operation pays off. Jersey, with Guernsey and the Isle of Man, now negotiates with a ‘level playing field’ strategy, using a ‘we’ll do it when the Swiss do it’ benchmark for the depth and timing of compliance measures. The three also adopted common texts for the proposed bilateral agreements and guidance notes for the EU Savings Directive. Further co-operation among the Crown Dependencies is anticipated but old rivalries linger; an outsider might perceive
LB144 Offshore p66-75
26/4/04
6:37 pm
Page 73
Offshore focus
advantages emerging from a union of Jersey and Guernsey, but it won’t happen.
Under pressure The predicament facing the BVI, Bermuda, Cayman, Guernsey and Jersey shouldn’t be understated. These are tiny jurisdictions with part-time legislatures and small administrations, dependent on financial services for up to 70% of GDP. The loss of a significant proportion of financial business would be catastrophic. All accepted the realpolitik of international regulation some time ago. In 2002, Robert Mathavious, managing director of the BVI Financial Services Commission (BVI FSC), didn’t mince his words during a speech to the BVI Chamber of Commerce, when he stated: ‘The reality is, the officials and politicians in the developed world are gearing their efforts to ensuring that all offshore centres meet international regulatory, supervisory and conduct of business standards.’ Pressure to meet those standards has been applied at three distinct but linked levels. First, at a macro level, improvement in the cross-border supervision of financial institutions was demanded. This was against a potential prudential risk in OFCs, identified by the IMF using 2001/2002 statistics, at $1.8 trillion of cross-border equity, and $1.7 trillion of net banking claims; respectively about 14% and 5% of world totals. Secondly, at a micro level, OFCs were accused of facilitating money laundering, fraud and terrorism, which has led to pressure for the improvement of transparency and KYC (know your customer). Tax evasion has latterly been brought within this head.
Finally, ‘harmful tax practice’, has been targeted by the OECD, the EU and, in some cases, the UK and US Treasuries. BMA’s Cox identifies two dangers from concerted international pressure. First, the risk of homogenisaJeremy Cox, Bermuda Monetary Authority tion, a ‘one size fits all’ approach which left centres poorly regulated and undifferentiated. education replaced the ‘blacklist’ approach. He explains: ‘The cookie cutter Lorna Smith, executive director of the BVI approach is dangerous and Finance Centre, perceives a helpful ongoing doesn’t accomplish anything. dialogue with the IMF as systems are Supervisory regulation must be shaped. A similar pattern of key reforms appropriate to the economy and emerged in the five jurisdictions reviewed: the development of the industry.’ The second risk was over■ Subject to some legal fine-tuning, all ambition, too much too soon. five jurisdictions now offer fully ‘Setting jurisdictional standards independent regulators. is one thing, getting the right people in place is another,’ Cox ■ IMF evaluation assessments have encoursays. ‘We need time to get aged compliance with international everyone engaged in setting regulatory standards such as the Basel standards for the global market.’ Committee on Banking Supervision core principles and approved anti-money laundering (AML) regimes. Moving forward Although pressure from the IMF ■ Changes to statutes covering regulation et al has been firm, once coof institutions, companies and financial operation was established, services have been implemented and are timescales became realistic and continuing. policies of persuasion and
‘The cookie cutter approach is dangerous. Supervisory regulation must be appropriate to the economy and the development of the industry.’
MELLO JONES & MARTIN Barristers & Attorneys
Specialising in corporate law, insolvency, restructuring, insurance, M&A, incorporations and corporate administration services, international banking and finance, mutual funds, hedge funds and investment companies, civil, criminal and corporate litigation, real property, trusts and estate planning, intellectual property, family law Reid House, 31 Church Street PO Box HM 1564 Hamilton HM FX, Bermuda Tel: 441- 292-1345 Email: mjm@mjm.bm www.mjm.bm
May 2004 Legal Business 73
>
LB144 Offshore p66-75
26/4/04
7:47 pm
Page 74
BERMUDA
BRITISH VIRGIN ISLANDS
THE CAYMAN ISLANDS
Regulator Bermuda Monetary Authority (BMA) Time zone GMT -4 hours Main geographical markets North America Key product markets Captive and protected cell insurance, particularly catastrophic property reinsurance; trusts and collective investment funds. Main competitors Guernsey, Cayman, Isle of Man, Vermont IMF evaluation status Assessed 2003 – results awaited. Selling points ‘The successful Bermuda model will continue to offer creative and innovative solutions in the captive insurance market.’ Jeremy Cox, BMA Recent regulatory changes The Investment Business Act 2003, effective January 2004, brings Bermuda into line with international standards for licensed investment business. Future regulatory changes The BMA has proposed a new primary statute to regulate pooled funds, including a licensing system for fund managers, with a ‘lighter touch’ for institutions. Expected to be effective by late 2004.
Regulator BVI Financial Services Commission (BVI FSC) Time zone GMT -4 hours Main geographical markets North America and Europe Key product markets International business companies; trust and private client wealth management; captive and protected cell insurance. Main competitors Cayman, Jersey, Guernsey. Insurance: Bermuda. IMF evaluation status Assessed 2003 – published 2004. Primary legislation provides adequate support to FSC. Professional and dedicated FSC staff but more needed. Some criticism of on-site inspection for supervisory purposes. Selling points ‘A common sense regime with a light touch. One that balances effective regulation with commerciality and the need for financial competitiveness.’ Lorna Smith, BVI Finance Centre Recent regulatory changes The International Business Companies Act 2003 ‘immobilises’ bearer shares from 31 December 2004. Virgin Islands Special Trusts Act 2003 – VISTA Trusts outside usual constraints on trustees. Future regulatory changes The BVI FSC is taking over insolvency regulation to create a ‘creditor-friendly’ regime. The amalgamated Companies Act will create single class of BVI company.
Regulator Cayman Islands Monetary Authority (CIMA) Time zone GMT -5 hours Main geographical markets North America and Europe Key product markets Banking; funds, including hedge funds; trusts and private client wealth management; captive insurance with niche in healthcare captives. Main competitors Funds: Jersey, Guernsey, Switzerland, Luxembourg Insurance: Bermuda, Guernsey, Isle of Man, Vermont IMF evaluation status Assessed 2003 – results expected mid-2004. Initial finding is of a developed compliance culture. Selling points ‘The fifth-largest financial centre in the world with a well-developed infrastructure that offers a broad range of financial products.’ Cindy Scotland, Cayman Islands Monetary Authority Recent regulatory changes Independent CIMA fully operational from March 2003. Future regulatory changes Task forces are looking at regulation in banking, insurance, investments and securities, and fiduciary services, as well as associated CIMA staffing. A mutual funds consultation paper is due this month.
>■
More recently, attention has turned to ‘product improvement’ legislation which improves jurisdiction market position.
■ The imposition of the EU Savings Tax Directive is still being finalised and, as mentioned above, there is resistance until unco-operative jurisdictions and Switzerland fall into line. The supervisory and regulatory measures introduced have generally satisfied the international inspectors’ initial reviews, with the proviso that insurance regulation needs more attention. Jersey and Guernsey were assessed by the IMF in 2002 with substantially positive results. The BVI’s 2003 review suggested some detail improvements but noted a fundamentally sound system. Bermuda and Cayman await finalisation of their 2003 reviews, and have received early signals that their structures are working. Tightening-up measures can be expected as regulatory skills improve in the OFCs.
Deep impact On balance, the regulatory convergence to common standards is being achieved without damage to the ‘character’ of
74 Legal Business May 2004
individual jurisdictions. But what impact have the reforms had to date on commercial viability? Regulatory changes have already been timeconsuming and expensive. Guernsey’s Richard Walker sees a continuing process which requires a resource commitment ‘according to need’ by cooperative jurisdictions: staffing at the BVI FSC will increase by 15% during 2004 and Bermuda’s Monetary Authority has already recruited an actuary to strengthen insurance compliance efforts and is committed to high staff recruitment and training standards. Alongside the rising cost base, client confidentiality is declining as AML measures take effect. Also, onshore centres have been making regulatory
changes and, according to Phil Austin of Jersey Finance: ‘There’s a drift of retail fund business to Dublin and Luxembourg.’ Meanwhile, Vermont has made some inroads into the captive insurance market. There has certainly been some loss of competitive edge by OFCs. But regulation has not had an entirely negative impact. The jurisdictions recognise that quality business will now go only where regulation is strong. Marcia Woolridge-Allwood, deputy director of banking, trust and investment at the BMA, neatly summarises the regulatory challenge: ‘We need to be responsive to markets without compromising supervisory standards, and that can only be achieved by establishing a close relationship with our financial industries.’ This close working relationship is proving effective. In Jersey, the new expert funds regime is the product of close co-operation between the industry and the regulators; the same model has emerged in other centres. There is no sign yet of a major loss of business in any of the centres we reviewed as a result of tighter regulation; most report
LB144 Offshore p66-75
26/4/04
6:37 pm
Page 75
Offshore focus
GUERNSEY
JERSEY
Regulator Guernsey Financial Services Commission Time zone GMT/BST Main geographical markets UK, Hong Kong and Far East, and Middle East Key product markets Funds, captive and protected cell insurance. Main competitors Funds: Jersey, Switzerland, Luxembourg, Ireland. Insurance: Bermuda, Cayman, Isle of Man. IMF evaluation status Assessed 2002, published 2003. Commended for comprehensive regulatory framework and level of international co-operation. Selling points ‘The leading European domicile for captive insurance.’ ‘Robust and sophisticated fiduciary legislation.’ John Bridle, Guernsey Finance Recent regulatory changes Market abuse law; tougher banking and fiduciary regulation allowing prohibition of named individuals. Future regulatory changes This year sees consultative papers on company law reform and the creation of a financial services ombudsman.
Regulator Jersey Financial Services Commission Time zone GMT/BST Main geographical markets UK, Hong Kong and Far East, Middle East and South Africa Key product markets Private client wealth management; banking; funds; SPVs; securitisation; and employee benefit schemes. Main competitors Banking: Switzerland. Funds: Ireland, Guernsey, Luxembourg and Cayman. IMF evaluation status Assessed 2002, published 2003. Commended for financial regulatory and supervisory system. Selling points ‘The breadth and depth of financial services, experience and knowledge of the workforce, and Jersey’s ability to innovate to meet specialist niche market requirements.’ Phil Austin, Jersey Finance Recent regulatory changes Expert funds regime for high-net-worth individuals and institutions, with fast-track approval from March 2004. Future regulatory changes Extensions are being made to legislation covering institutional inspection backed by monetary fines for administrative breaches. There will be consolidation of all regulatory legislation.
healthy flows of new work. However, there are reports of consolidation amongst financial service providers. Cindy Scotland, managing director of the Cayman Islands Monetary Authority, reports a fall in banking activity and some licence shrinkage as global restructuring takes place. This is confirmed in Jersey and
Guernsey with bank consolidation, as major players have opted for a single Channel Islands base. Jersey Finance’s Austin estimates that about a quarter of the trust service
providers on the island have merged, closed or migrated, but notes that the ‘bottom tier’ has been lost and overall quality in the sector has improved.
Survival of the fittest Our research tends to confirm the findings in PricewaterhouseCoopers’ ‘Global Private Banking/Wealth Management Survey 2003’. It states: ‘Wealth managers will continue to consolidate their operations and reduce the number of offshore centres in which they operate to one key centre in each region… wealth managers should expect the number of offshore centres to decline from the current level of well over 50. Some 20 or 30 may be sustainable in the future.’ The five centres reviewed here are likely to be OFC survivors in the first round of consolidation. They each offer solid infrastructure, niche expertise and high-quality service. In the longer term, there are risks. Further regional concentration is likely and the time-zone advantages offered by Dubai and Singapore may attract a bigger proportion of Middle Eastern and Far Eastern business. But the best chance of survival these top-tier jurisdictions have is to continue the strategies adopted: to offer adaptable centres of excellence, build on existing skills and develop new products with the encouragement and support of regulators. LB mairead.keohane@legalease.co.uk alan.lamb@legalease.co.uk
WALKERS Walker House, PO Box 265GT, Mary Street George Town, Grand Cayman, Cayman Islands Tel (+ 345) 949 0100 Fax: (+1 345) 949 7886 ■ Asset finance
■ Litigation
Contacts: Ian Ashman, Mark Lewis, Wayne Panton, Grant Stein, Jonathan Tonge, David Whittome, Angus Foster, Guy Locke, Diarmad Murray, Frank Banks, Iain McMurdo, Heather Bestwick, Sara Collins-Francis
■ Banking
■ Insolvency & corporate recovery
Offices:
■ Capital markets & structured finance
■ Regulatory
■ Corporate
■ Real estate
Walkers: Cayman Islands, British Virgin Islands, Hong Kong, London
■ Insurance
■ Trusts
■ Investment funds
Walkers SPV Limited: Cayman Islands, Tokyo Number of lawyers: 75 Website: www.walkers.com.ky
May 2004 Legal Business 75