Oliver Morris, Advisory Director at KPMG in the Channel Islands, reminds us that Brexit isn't the only big issue we should be getting to grips with
A lot of noise is being made about the positive or negative aspects of Brexit. However, there are a number of sleeping giants that could have an impact in the Channel Islands long before Brexit is a reality.
Tax reform
The recent ruling from the European Commission on the tax affairs of Apple in the Republic of Ireland has again raised the issue of tax morality. The EU is undertaking a review of its external taxation strategy, which will result in a revised scorecard for the assessment of third-country tax regimes and the production of a new ‘tax haven’ list scheduled for 2017.
Meanwhile, the OECD continues with the development of the Base Erosion and Profit Shifting action plan, which is filtering through to amendments to domestic tax regimes.
Jersey has been a lead adopter of OECD actions and principles. Continued adherence to the principles and demonstration of our robust tax framework to the EU are both key to the future of our financial services industry.
Brexit raises the question: without our UK ally having a voice at the table, will we be at the mercy of the bureaucrats? Are we potentially facing a blacklisting event in the future?
With any blacklisting event, we could see access to EU markets restricted long before any Brexit negotiations have really begun, possibly having an impact on the Channel Islands fund market across all asset sectors, particularly for those relying on the private placement routes in to the EU.
General Data Protection Regulation (GDPR)
The EU intends to implement the GDPR in order to strengthen data protection for EU individuals. The GDPR also addresses the export of personal data outside the EU, so it will be relevant to the Channel Islands irrespective of the final Brexit position and our updated data protection regime.
The regulation comes into force on 25 May 2018. The primary objectives of the GDPR are:
• To give citizens an increased level of control over their data
• To improve protection of personal data through the role of ‘processors and custodians’ of data
• To increase regulatory oversight and supervision.
All of the above come with severe penalties for non-compliance, including a fine of up to €20m or up to four per cent of the total worldwide annual turnover of the preceding financial year, whichever is higher.
We are yet to see exactly how the GDPR will be implemented across the Channel Islands, but it will inevitably require significant attention for those deemed to be processors and custodians of EU data, particularly since many of our businesses have EU operations.
How will those providing service to the both EU and non-EU market participants deal with these requirements?
In the funds space in particular the capital base includes a large element of European capital, which will capture the likes of Channel Islands administrators and fund managers. So whether service providers like it or not, they are likely to be caught by GDPR and will have to make plans to address the requirements.
Wider political reform
We are set for one of the busiest periods in international politics in recent history. The closely contested US presidential elections are to take place in November, the Netherlands in mid-March 2017, the French presidential elections in April/May and Germany going to the polls between August and October. Further afield, there's also a presidential election in India in 2017.
We can expect to face a very different political environment by the end of 2017, one that will have far-reaching consequences on the global economic markets.
Whilst the UK may be focusing on the exit package it wants, who will be on the other side of the negotiations is as yet unclear. With the changing political landscape and uncertainty over what will happen to matters such as domestic taxation, there is a possibility that the relative stability of the Channel Islands will attract those seeking to relocate.
We have already seen an increase in the number of hedge fund managers in Jersey and, with the political upheaval taking place, we may see this spread beyond the hedge sector and wider.
The changes we face across the EU alone could have significant impacts on the Channel Islands. With a potentially seismic shift in European politics, it is unclear where the perception of the Channel Islands will land and the impact this could have on key issues such as access to European markets.
With change all around, can the Channel Islands provide an oasis of stability?