As Jersey’s financial services industry turns 50, Geoff Cook examines how the market has changed for the island finance centre and considers how Jersey can stay competitive in the industry today.
With 2011 marking the 50th anniversary of Jersey’s financial services industry, it seems an appropriate milestone to not just reflect on how Jersey arrived where it is today but also to look ahead to what the future holds for the island.
Naturally, the financial services industry of today is radically different from that of 50 years ago. We are operating in a far more competitive market than was the case back then and one which is much more international in scope.
As a result, Jersey has needed to stay innovative not only in terms of developing the products and services it offers but also in the way it promotes itself and engages with stakeholders in an increasingly international marketplace.
With that in mind, a key part of Jersey’s programme has been its focus on developing business links with those overseas markets where economic growth is rapid and where rising numbers of high net worth individuals are based.
This has involved regular visits to finance centre locations in the GCC, Hong Kong, mainland China, India and, more recently, Russia. These visits are now a regular feature of Jersey Finance’s events calendar and are designed to create a platform for Jersey business by building commercial ties, raising awareness of the services available in Jersey and outlining Jersey’s focus on high standards of regulation and corporate governance to government officials, regulatory authorities, key intermediaries and senior industry professionals.
To communicate our messages effectively, it has become increasingly important to have a consistent presence in these markets. While traditional markets such as London are not neglected, the role of Jersey as a jurisdiction has had to be conveyed to other markets where the jurisdiction is less well known and this requires efforts beyond the programme of frequent visits.
For this reason, in 2009 Jersey Finance underlined its commitment to Hong Kong, Greater China and the Far East more generally by opening a representative office in Hong Kong, under the supervision of Head of Greater China Business Development, Zhaoan Li.
Jersey’s relationship with China has been strengthened in other ways too, such as signing a Tax Information Exchange Agreement with China and Jersey Finance launching a dedicated micro-site in Mandarin last year. In addition, Jersey was represented at a major business event in London in January this year attended by around 500 Chinese and British politicians, officials and business leaders, whilst representatives from Jersey Finance took part in an eight day formal visit to China and Hong Kong in April, led by the Lord Mayor of London. Additionally during an intensive eight day visit to Greater China and Hong Kong in June, a delegation from Jersey Finance and the States of Jersey met with a number of key industry and state officials in Hong Kong, Beijing, Tianjin and Shanghai to further enhance Jersey’s reputation as a world-class finance centre and gateway for Chinese investment into Europe.
In early 2011, Jersey’s presence abroad was extended further with the opening of an office in Abu Dhabi and through establishing Jersey Finance representation in India, overseen by Sean Costello, Head of Business Development for the GCC and India.
There is no doubt that this commitment to these emerging markets is proving hugely valuable. The effort that Jersey Finance and the States of Jersey have put into building positive, long-term relationships with, for example, China, the GCC and India is bringing real, tangible benefits.
In the Chinese market, Jersey is establishing a strong reputation for its high value listings work. There are currently around 90 Jersey companies listed on worldwide exchanges with a combined market capitalisation of over £103 billion, whilst a quarter of the 60 Chinese companies listed on AIM are incorporated in Jersey.
As well as listings work, some 18 per cent of bank deposits held in Jersey now originate from either the Middle East or Far East and that figure is rising.
It has also been interesting that those markets that are looking to develop a financial services industry have been keen to learn from Jersey too, as part of a healthy two-way relationship. In Greater China, for example, Tianjin has had a financial services industry for only a few years and, in a recent visit, officials there were interested to learn from a jurisdiction like Jersey with its 50 years of experience.
More recently, Russia has formed part of Jersey’s international programme. Following a number of visits, it is clear that there is increasing interest from Russian family offices in using private trust company ownership as part of their wealth management strategies. With Jersey’s trust law being so well regarded, Jersey is extremely well placed to offer the estate planning and asset protection services that high net worth Russian individuals and families are seeking.
Jersey is really seeing the benefits of the effort that has been put into building a positive relationship with these markets and it is important that we continue to build on that success.
In addition to the international visits, of course, product innovation and legislative enhancements remain important in terms of developing Jersey’s offering to those markets. There are numerous examples of new legislation that, over the years, have helped introduce new vehicles, structures and options to the market.
Following their introduction in late 2009, for example, Jersey Foundations are growing in popularity amongst professional advisers and their high net worth clients. There are now over 100 foundations registered in Jersey, being used for a variety of purposes - philanthropic foundations, family foundations and entities known as ‘orphan’ foundations, which are alternatives to Jersey Purpose Trusts, for example. Whilst continental European residents living under civil law regimes have been the most prolific users of Jersey Foundations thus far, interest is expanding to other jurisdictions, such as Hong Kong, the GCC, Russia and the UK.
Away from the wealth management industry, the introduction this year of Incorporated Limited Partnerships (ILP) and a new dedicated and distinct law for the constitution of Separate Limited Partnerships (SLP) has given wider appeal to the international funds community. Together, these will offer more choice to international investors, with the new SLP appealing in particular to funds clients and those wishing to set up carried interest vehicles. The new ILP, meanwhile, will find use in structured finance.
Jersey’s flexible company law is also gaining wide recognition on the international stage. New regulations implemented this year simplified the process for mergers between Jersey companies and foreign ones, for example, whilst approval for Jersey companies to be listed on the Hong Kong Stock Exchange in 2009 also widened Jersey’s appeal for corporate work.
The positive impact of all these efforts is reflected in recent statistics. Figures for the first quarter of 2011 show that banking deposits increased by three per cent to £166.5bn and that the net asset value of funds under administration increased by 5.4 per cent on the previous quarter to stand at £194.6 billion – the highest level since mid-2009. The total number of regulated and unregulated funds also increased. The ‘specialist’ funds sector in particular continues to perform extremely strongly, with the alternative asset class reporting a net asset value growth of 5.9 per cent to £142.9bn to now represent 58 per cent of the total value of funds under administration.
While these latest figures and indicators are positive, Jersey remains alert and keen to capitalise on future business prospects, in the face of numerous challenges - including aggressive competition from other jurisdictions and increasing international regulation.
For all international finance centres, there is an absolute requirement for jurisdictions to provide the highest standards of regulation and to co-operate internationally in combating fiscal crime and in exchanging information on tax in appropriate circumstances.
We are hearing time and again from major industry players that reputational advantage plays an absolutely vital role in the jurisdictional decisions of individuals and businesses and Jersey has been quick to make its position as a robust, compliant and transparent financial centre absolutely clear.
For example, Jersey has a proactive programme of signing tax information exchange agreements with other nations and is the highest rated offshore international finance centre in the Global Financial Centres Index (GFCI) – a position it has held for the last four consecutive indexes.
As we look forward, the core strengths of Jersey, which have served it well during the first 50 years, will continue to be important in future. As well as its strength of regulation and commitment to transparency, the appeal of Jersey’s political and economic stability should not be under-estimated, nor the inherent skills that the jurisdiction’s workforce can call upon through decades of growth and diversification.
Infrastructure also remains important in developing international business, and Jersey is fortunate to have an impressive network of law firms, accountancy practices, fund services houses, trust companies, banks and corporate services providers, that ensures a range of expertise and an appropriate level of corporate oversight is available locally.
While Jersey will continue to work closely with traditional markets in the UK and Europe, growth will also undoubtedly arise from the emerging markets. Through a programme of international market development and relationship building, together with a focus on product and service innovation and high standards of regulation and corporate governance, Jersey is well placed to gain business in emerging markets and this will make Jersey a bigger, stronger and more developed financial centre.
Geoff Cook International Board Director and Consultant - Formerly Chief Executive Officer at Jersey Finance. Geoff Cook is a regular speaker and contributor to conferences and seminars around the world and writes frequently on the issues affecting Jersey and other finance centres. Prior to his role at Jersey Finance, he was Head of Wealth Management for HSBC Bank Plc, based in London, responsible for the delivery of Financial Planning Services to the 10 million HSBC customers in the UK.