If the last few years have taught us anything, it’s that working collaboratively is undeniably a good thing for IFCs. As we’ve emerged from the global financial crisis, navigated the ensuing raft of regulation aimed at de-risking and stabilising the global financial markets, and managed the misunderstandings around what IFCs do, working together with other IFCs to provide some clarity has been very helpful.
The reality is that, ultimately, good quality IFCs share common goals - they want to meet international standards on money laundering, bring added value in facilitating cross-border business, and play a positive role by creating safe, secure environments for wealth creation, thus enabling everyone – not just the few – to benefit.
For its part, Jersey believes that those IFCs that share this vision should work together.
As we preview 2019, there is a fine balance between the march of political protectionism on the one hand and the force of globalisation on the other. From an international financial services perspective, we are faced with a prospect of real fragmentation, a tapestry of opposing agendas and initiatives; we might have something of the same end goal but there are confusing and sometimes conflicting overlaps.
With Brexit on the horizon, this dynamic is becoming increasingly important – it is posing, for instance, real question marks over global standard setting and approaches to tax and the transparency agenda.
The EU, for example, is making moves to extend its own Anti-Money Laundering (AML) directive and maintain its own list of non-cooperative countries; the UK is attempting to lead the charge in making publicly accessible beneficial ownership registers a global standard; the US is pursuing its own cooperation framework through the Foreign Account Tax Compliance Act (FATCA); and the G20, the Financial Action Task Force (FATF), and the Organisation for Economic Cooperation and Development (OECD) continue to set their own agendas.
Even within Europe, there are contradictions between the drive towards transparency through the 5th anti-money laundering directive, and the privacy rights of citizens under General Data Protection Regulation (GDPR) rules brought in in May 2018.
The message for IFCs is this: - now more than ever, it’s vital to tell our story, provide clarity around the beneficial role of IFCs, and explain how IFCs can work with partners in the EU and UK to address any concerns and help build a better and more certain future.
In fact, being united and able to tell a coherent story together can be instrumental not only in explaining what IFCs do, but in bringing some cohesion and clarity to some vastly complex issues. IFCs shouldn’t underestimate their role here.
For instance, the EU’s screening of third countries over the past few years raised the issue, as far as the Crown Dependencies were concerned, of economic substance. The concern raised by the EU wasn’t so much that the Crown Dependencies couldn’t demonstrate substance, but rather that there was no clear definition of the concept of substance.
By working together with colleagues in Guernsey and the Isle of Man, the authorities in Jersey have helped move this forward and drawn up a legislative framework that can satisfy this concern – not only helping all three IFCs in being recognised as co-operative jurisdictions, but also providing fundamental clarity around economic substance more widely where cross-border financial activity is concerned.
Further, a key narrative to emerge from a series of white papers Jersey Finance published in 2018 on the private wealth landscapes in China and the GCC was that IFCs are extremely well placed as cross-border experts to play an important role in supporting investors by helping them understand and fulfil their international regulatory, reporting and compliance obligations.
As IFCs we cannot be complacent. The coming years will almost certainly see further economic, social and political volatility. The fall-out of Brexit will be complex, whilst economic market cycles, social unrest around the world, digital disruption and the intense scrutiny of tax will all pose challenges too. IFCs will need to proactively come together to provide a coherent, rational voice on key issues.
Explaining tax neutrality is an example. As an industry, we have perhaps, certainly in the past, not grasped this issue as well as we might. Whenever there is a reference to tax neutrality or a zero rate of tax, it seems the assumption is that investors are not paying tax.
Tax neutrality, though, is a vital component of the IFC eco-system and we absolutely need to make greater collective efforts to explain it accurately and simply in the future i.e. that it is not a mechanism to avoid paying tax where it should be paid but is designed to ensure that investors do not pay tax on their returns more than once.
Whilst cooperation and collaboration between IFCs is vital on key issues, healthy competition amongst IFCs is positive too.
Indeed, differentiation for IFCs has become a valuable quality, and it’s important to recognise that IFCs do have their differences.
Jersey, for instance, has developed a specialist private wealth sector over decades, whilst other centres have focused on other areas – Guernsey on insurance, Caribbean IFCs on hedge fund and corporate activity, and so on. Of course, all IFCs are not restricted to just these activities, but it’s often the case that they have carved out niche areas where they can provide specific expertise.
What this means for inter-jurisdictional cooperation is that IFCs should be free to pursue a strategy of differentiation – in fact it’s important that they do so - to maintain a healthy IFC market where all IFCs can push each other and global standards more widely.
As far as Jersey is concerned, we have a strategy of positive differentiation. In the wake of the global financial crisis, we invested considerably in a strategic vision that set out a course that would enable us to navigate anticipated challenges and seize market opportunities.
Following that vision has enabled us to differentiate - our commitment to innovation and digital capabilities, our focus on governance, and our belief in being a positive force in facilitating global investment have played a key part in that.
One of the frustrations in international debates about IFCs is the assumption that all IFCs are identical, but the sense is that this is changing – in debating the Sanctions and AML Bill in early 2018, for example, the UK government distinguished between Overseas Territories and Crown Dependencies; as the beneficial ownership debate has evolved in 2018, clear differences have emerged between the structure and approach to beneficial ownership between IFCs, with Jersey setting itself apart having had an ultimate beneficial ownership register in place in 1989; and the OECD’s Global Forum ratings make it quite clear that standards of compliance and cooperation differ, often considerably, between IFCs.
It is not that being an IFC, in itself, is what links IFCs together – there are good IFCs and there are poor IFCs, just as there are well-regulated countries and poorly-regulated countries. Recognising that these differences exist is important if global debate is to progress rationally and sensibly. IFCs should be evaluated is in their ability to deliver positive value professionally and in fighting financial crime effectively.
It is on these issues where there is scope for collaboration – and that is not at the expense of healthy competition and differentiation.
Jersey has its eyes on the long-term and is ready to work with like-minded IFCs that want to do their business in the right way and that believe passionately that their role in the world is a vital and positive one.
As a jurisdiction, we believe that strategies of positive differentiation and collaboration need not be contradictory, and we are constantly working with stakeholders in other IFCs and key markets around the world to set common goals, to fight financial crime, to uphold our commitment to international cooperation and to make global financial flows more efficient and more impactful.
The world might seem fragmented and complex, but we are convinced that working together is a better solution. If we and other IFCs can be forward-thinking in our approach, we will be ready and better prepared both for the challenges that come our way and the opportunities on the horizon.
Geoff Cook is an experienced Chair and non-executive director. He has led significant business enterprises for more than three decades and helped major international groups to grow and prosper. As a Chartered Director, Geoff has deep knowledge of corporate governance, global regulation, and risk management. He has authored numerous articles and papers on cross border investment and the role of International Finance Centres (IFCs) in the global financial system. Geoff is an Advisor and non-executive director to a select number of Family Office, Private Capital, and Advisory boards. He was appointed Chair of Mourant Regulatory Consulting in 2021 and Chair of Quilter Cheviot International in 2019 to lead and develop the firm's international strategy. Geoff is also Chair of Apex Financial Services (Jersey) Ltd, a leading fiduciary and is presently Chair of the Society of Trustee and Estate Practitioners (STEP) Global Public Policy Committee. He was formerly the CEO of Jersey Finance and Head of Wealth Management HSBC with extensive international cross border experience across various sectors.