The credit ratings of both Jersey and Guernsey have been downgraded from AA+ to AA by Standard & Poor's.
The downgrade comes after a recalibration exercise by S&P and is the first time the islands have seen a change to their ratings. Jersey was first given a rating (of AA+) in 2014 so it could borrow money to build social housing.
The credit rating of AA still remains one of the highest possible ratings. Indeed, there is only a marginal difference between the two ratings, as defined by Standard & Poor’s: 'An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.'
S&P have cited rising regulatory complexity and the G10’s focus on low-tax regimes as a reason for the change. This is despite both islands insisting they meet international standards of tax transparency and financial regulation.
The islands' outlook has also been labelled as 'negative' to reflect the uncertainty of the economy if the UK exits the EU.
Both islands say they are 'disappointed' with the downgrade as no material change has taken place.
Senator Alan Maclean, Treasury Minister for Jersey, commented: "While we understand that credit rating agencies are liable to take a particularly risk-averse view, we are disappointed with this recalibration exercise. It is good that Jersey has retained one of the highest possible ratings but we do not accept the rationale behind the change."