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This article from
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Industry explores new business openings
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PHIL AUSTIN
Chief executive, Jersey Finance Ltd
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THE Island’s Finance Industry has emerged from a period of international negotiation and scrutiny in a confident mood.
The period since 2000 has been a transitional one for many of the leading offshore jurisdictions, including Jersey and the other British Crown Dependencies, and it is at a time when competition for quality business has also intensified. Considerable resources have been set aside to meet stringent new regulatory requirements in the wake of the increasing terrorist threat, to satisfy the external scrutiny of the international community and to negotiate new agreements on financial services issues.
Innovation
With a governmental agreement secured with the European Union on taxation, our regulatory regime further endorsed by the IMF and with the profile of Jersey enhanced by increasing marketing activity overseas, the industry is looking at product innovation to support a more confident mood.
There are a number of factors that contribute to this positive outlook. Firstly, the industry has generally welcomed the direction outlined by Policy & Resources in the new Strategic Plan and the recommendations it has made in the much debated fiscal strategy. The industry needs the backing of its government if it is going to succeed in a hugely contested financial services environment, and it feels it has got just that. The Jersey authorities have proved willing and able to defend the industry on the international stage and have ensured that the Island’s voice is heard at inter-government level in Europe and elsewhere.
Secondly, the industry has been encouraged by the sentiments expressed recently by the Jersey Financial Services Commission. The efforts that have been undertaken to enhance our regulatory regime, beginning with the ground breaking anti-money laundering legislation in 1999, have proved strong ammunition whenever it has been necessary to defend our industry. However, while recognising the value of strong regulation, we welcome the commission’s more recent comments that regulation should not be too heavy handed and should be in tune with good market practice. We welcome the view expressed that regulation, while managing risk, can play a part in helping business to expand. This stance gives an important signal to our international clients that while we will not sacrifice the quality of our regulatory capabilities, we will be flexible in supporting business growth. The industry and its extensive network of trade association representatives, now co-ordinated under the Jersey Finance umbrella, is working more closely with the commission which we hope will help accelerate this process still further.
The introduction of the Expert Fund and the Non Jersey Domiciled Fund Guides, two innovative developments that are proving to be a catalyst for new business opportunities in the funds sector, is the most obvious example of the importance of this new, closer partnership.
Thirdly, there appears to be far more international recognition that Jersey and other similar centres are not wholly reliant on tax for their success. International tolerance of certain business practices has long gone and the Island has moved away from using such phrases as ‘tax haven’, which paints a wholly inaccurate picture of the range of financial services available from the jurisdiction. We all recognise that a tax-neutral platform remains an important element in the mix of attributes that offshore finance jurisdictions require in order to be successful. However, there is a general awareness abroad at government level and among decision makers that a successful finance centre also relies upon its reputation for probity, a mature, sound legal system, a flexible but rigorous regulatory system and an experienced and skilled workforce that can manage the work effectively. Criticisms will inevitably arise from time to time, particularly from pressure groups opposed to all offshore finance activity and from countries where our industry is not well understood, but we are far more prepared and have a strong basis on which to defend the reputation and probity of the Industry.
While confident in our future, we are not complacent and we know many practical difficulties lie ahead, not least from the changes that have been proposed for onshore and offshore jurisdictions through the accord with the European Union. Banking professionals are monitoring closely the timetable and implications of the EU Savings Tax Directive. Although the Swiss have reached agreement, and will withhold tax in the same way as is proposed in Jersey, it has still to be ratified by their parliament. It now appears certain that this will delay the introduction of the directive from 1 January 2005 until July next year at the earliest. The industry has geared up on the assumption that the directive is implemented from the beginning of next year so we are ready whatever the outcome. However, many uncertainties remain about the position of other jurisdictions and on some of the practical implications of implementing the new tax. One certainty is that the ‘level playing field’ principle applies and if the whole of Europe is not ready, Jersey will not be forced to press ahead before other jurisdictions and thus our competitive position is preserved. Our international contact programme has enabled us to focus on important regulatory and legislative developments within the industry which bode well for the future. The funds industry has been reignited by the Expert Funds Classification which introduces a new fast-track approach for Expert Funds and encourages the setting up of more hedge funds, private equity and other expert funds in the Island. The Non Jersey Domiciled Funds Guide, which is imminent, will enable funds domiciled elsewhere to be administered in the Island and should prove a further boost for business.
Corporate business, which is now probably the fastest growing sector of the business, has benefited from changes to company law which enables, for example, par value, no par value and guarantee companies to be formed, giving investors far more choice in their investment planning.
There are further enhancements on the horizon including legislation to permit Protected Cell Companies and reform of the Island’s Security Interests Law, which will be a further boost to capital markets work. The banking, investment and trust sectors, the bedrock of business in the Island for 40 years, show no signs of stagnation. Wealth management practitioners currently highlight a trend towards providing more institutional style investment products tailored to meet the needs of ever more sophisticated private clients. Meanwhile, a recent Legal Week/Bailhache Labesse Survey recorded that 87 per cent of 100 City lawyers canvassed indicated that Jersey was their preferred location for trust business.
We are bringing details of the various developments in Jersey to international audiences in London, New York, Brussels and the Gulf this year and the response to date has been extremely encouraging. In 2004, the industry has been able to outline a vision that delivers new innovative investment solutions to both corporate and private clients, supported by a responsive legislative and regulatory framework. It has a commitment from senior figures in government to work to preserve the future of the finance industry and together these moves represent encouraging signs for its future.
The finance industry employs around 25% of the total workforce and contributes revenue to a range of businesses in inter-related industries. It also currently delivers sufficient funds in tax each year to virtually meet the annual budget for health, education and social services and it remains a strong supporter of community activities. Therefore, indicators that point to a prosperous future for the finance industry should have a positive knock-on effect across the Island generally.
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