Experts from across the Channel Islands share their predictions on the challenges and opportunities that lie ahead for key sectors in the next 12 months
FUNDS
Mike Byrne, Chairman, Jersey Funds Association
As we enter 2019, how would you assess the general health of the funds sector in Jersey?
We find our funds industry in excellent health, with a record level of fund assets in Jersey and fantastic momentum behind new fund launches. The most recent figures available show total fund assets of more than £315bn, the first time we’ve exceeded the £300bn mark as a jurisdiction.
This is the aggregate of our regulated funds of £296bn and our recently established Jersey Private Funds (JPF) assets of close to £20bn.
The global outlook for Alternative Assets Funds (Alts) – Jersey’s sweet spot – looks incredibly strong, so overall there’s lots to be confident about.
Over the coming 12 months, what do you see as the biggest challenge facing the funds sector in Jersey?
The Jersey Funds Association (JFA) recently conducted a survey of our 100-plus members, asking for their views on the key challenges we face. We see these breaking down into two key areas: locally, our members report challenges around the availability of appropriate resources to respond to the growth we’ve seen.
We see record levels of employment in the funds sector and, although we’re attracting new talent into the industry, our members have demand for even more. This need for talent exists despite unprecedented levels of technology investment and process improvement across the industry.
Looking further afield, the key challenge reported by our members is to ensure that international fund managers and investors fully understand the role Jersey can play, and the quality of services and solutions we offer.
Full credit goes to Jersey Finance and our government for all they do on the international stage, but in a world of increasing regulation and competition from other jurisdictions, maintaining our share of global growth remains a challenge.
And where do you believe the greatest opportunities lie?
This was a key area of focus in our recent JFA survey and three key markets dominate:
• The UK – our nearest and most significant source of business, many members see this as a key market going forward, especially given that it will sit outside the European Union (EU)
• North America – the US represents more than half of global fund assets and is a market in which we’ve been underweight for many years. Given the increasing need for substance – and Jersey’s ability
to offer this – US-related funds, which have traditionally been located in the Caribbean, may need to look elsewhere in the future
• The Middle East – an important market for many Jersey businesses over the coming years. Again, credit goes to Jersey Finance for its new office in the Dubai International Finance Centre to support this growth.
At an asset class level, private equity/private debt, infrastructure and real estate dominate in terms of opportunities for our members over the coming year.
Is there one thing that will dominate Jersey’s funds sector in 2019?
I don’t think there is one specific factor – either markets or products – that will dominate in 2019. One hope for the year ahead is that the uncertainty that has prevailed around Brexit starts to decrease. Although Jersey isn’t directly affected by Brexit, the vast majority of our clients are, and what’s good for our clients is good for our island.
I’m confident that we will continue to see the Channel Islands emerge as a global centre for digital innovation in asset management. We’ve seen this at both the fund level – for instance, in the area of crypto – and also at the service provider level, through advances in the use of blockchain technology for fund administration. Long may this continue.
Public equity and bond markets will also be a key focus. And having seen a 10-year bull market since the global financial crisis through to record levels throughout most of 2018, later months have seen a certain level of correction and investor uncertainty.
Market direction throughout 2019 and what this means – for instance, for the trillions of dollars in index tracking funds – will certainly be interesting, with many investors looking at whether now is the time to switch into largely uncorrelated, private market Alts.
What other funds sector issues should be on our radars over the coming year?
In recent years we’ve seen a number of London-listed funds being established in Jersey, and investing in alternative assets. This form of long-term capital vehicle (as opposed to the fixed, typically 10-year life of many Alts funds) is a source of interest to many investors, offering a combination of continuity of ownership of assets whilst providing potentially greater liquidity than traditionally seen in Alts.
As at asset class level, the search for yield continues and the evolution of Alts assets to provide this return through private debt, yield-producing property and infrastructure will be an ongoing theme for many institutional investors.
Andrew Weaver, Partner and Jessica Jiang, Senior Associate, Corporate, Appleby, Jersey
As we enter 2019, how would you assess the general health of the funds sector in Jersey?
We expect the Jersey funds sector will be generally more active and healthy in 2019 than in 2018. No matter what the result of Brexit, after March 2019 there will be more investment opportunities in the market for private equity funds, hedge funds, debt funds and funds focusing on distressed assets and then eventually boosting fundraising activities.
We’ve observed a ‘wait and see’ approach taken by some fund managers (especially first-time fund managers) in 2018 due to the uncertainties caused by Brexit. Certain types of funds, such as real estate funds, have been more affected. In 2019, both the buyer side and seller side will tend to be more willing to move forward and reach deals, no matter if prices of assets are increasing (good for sellers) or decreasing (good for buyers).
Even if a no-deal Brexit happens, it is feasible that buyers would take advantage of fluctuating valuations. The opportunities of underlying investments will, we expect, encourage fund managers to actively make investments and simultaneously raise new funds.
Investors may feel vulnerable in 2019 due to the changing political and economic environment and allocating their assets more broadly for wealth protection purposes will be a response to this. Pensions and sovereignty funds have to further diversify their investments to satisfy their strict investment risk controls. All this will make investors more willing to invest in different types of funds.
The challenges in other parts of the world, including the US and China trade war, may also push funds participants to react quickly. On the horizon, aggressive fundraising, secondary sales of fund interests and even spin-off funds and restructuring of fund management entities may become common in 2019.
Jersey is a traditional domicile for pan-European funds and fund management entities and is well positioned in the European Union (EU) and the UK. We see a huge opportunity for the Jersey funds sector in 2019 if the island’s non-UK and non-EU position, and its economic and political stability, can be well utilised.
Over the coming 12 months, what do you see as the biggest challenge facing the funds sector in Jersey?
The biggest challenge comes from the ‘traditional onshore’ jurisdictions – including Luxembourg and Malta in the EU, Singapore in Asia and even the US. They’ve become the competitors to offshore jurisdictions.
In 2019, in a fast-changing economic landscape, all jurisdictions will face pressures domestically and internationally, economically and politically. In the next 12 months, if those onshore jurisdictions continue to lower tax rates, provide more favourable tax and regulatory treatments (particularly for ‘valuable’ sectors, such as high-tech, fintech and biotech), it will be no surprise to us if certain funds businesses relocate from offshore jurisdictions to those onshore jurisdictions.
And where do you believe the greatest opportunities lie?
In 2017, the EU challenged offshore jurisdictions on the basis that they attract profits that do not reflect real economic activity in such jurisdictions. Most of the offshore jurisdictions have committed to the EU to impose substance requirements and implement those requirements into domestic laws at the beginning of 2019.
Jersey, an island that has more than 13,000 highly skilled and experienced finance professionals, 4,240 banking industry employees and 182 regulated trust and company service providers, is capable of offering all the facilities and professionals needed to satisfy the new substance requirements and thus would be an ideal jurisdiction for fund businesses willing to comply with the EU regulation.
Is there one thing that will dominate the sector in 2019?
‘Diversification’ is the key word for the Jersey funds sector in 2019. We expect more restructuring of existing fund structures and more establishment of ‘new-new’ fund structures from ‘traditional’ fund types (such as hedge, debt and private equity funds) to hybrid funds such as limited liability companies (LLCs), managed accounts and JV structures.
One thing worth mentioning is the new Jersey LLC regime. LLC, as a hybrid structure between a company and a partnership, is familiar to US managers and investors and commonly used in the US market. The new legislation may attract more US-based fund managers to set up structures in Jersey. LLCs can also be easily understood and accepted by US investors.
We also expect more attention and investments from Asia following the Jersey Chief Minister’s visit to China in November 2018. We anticipate the Jersey protected cell company (PCC) structure, which is equivalent to the Cayman SPC (segregated portfolio company) structure will become more commonly used by Asian fund managers and Asian investors in 2019.
The more that US and Asia-based managers, investors and professionals participate in Jersey, the more diversified the Jersey funds sector will become.
What other funds sector issues should be on our radars over the coming year?
Fintech, high-tech and biotech funds are worth attention. We do see more and more activity in the tech funds sector. The challenge to the island is that most tech funds require their directors, administrators and other relevant service providers to have a good understanding of new technologies and be willing to work in an innovative environment (but at the same time comply with existing laws and regulations and eliminate legal risks).
It’s critical for Jersey to attract more funds professionals who have relevant background and experience working in the island and we also urge funds professionals to keep learning new technologies and thinking creatively.
We would also like to emphasise the importance of 2019. It will not be a normal year. Opportunities and challenges will be both boosted in the next 12 months. Any jurisdiction that loses its market share in 2019 may have to pay a high price to get it back.
We thus urge Jersey funds professionals to work proactively, and the States of Jersey and the Jersey Financial Services Commission to consult with the private practice sector more frequently, to ensure the Jersey fund sector maintains its forefront position in the world.
Annette Alexander, Partner, Corporate and Finance, Carey Olsen, Guernsey
As we enter 2019, how would you assess the general health of the funds sector in Guernsey?
We should feel very confident about the health of the Guernsey funds sector. The most recently available figures from the Guernsey Financial Services Commission show that the total value of funds business in Guernsey stood at £272.6bn at the end of Q2 2018 – a five-year high.
Not only that, new findings from independent fund research company Monterey Insight found that Guernsey had attracted 21 new promoters to establish their funds in the island in the past year. This shows that the funds sector remains buoyant and that the island continues to be attractive to high-calibre investment business.
Over the coming 12 months, what do you see as the biggest challenge facing the funds sector in Guernsey?
It almost goes without saying that dealing with Brexit as well as other global uncertainty will be key issues. Having said that, our third country status remains unchanged throughout the Brexit process and that should provide reassurance to those managers looking for a stable, continuing platform to access the EU.
Similarly, the EU substance issues are certainly on our radar, but it’s likely that most of the investment funds business in Guernsey already meets the substance requirements as currently proposed.
And where do you believe the greatest opportunities lie?
Guernsey’s greatest opportunity centres on continuing to make the most of the island’s hard-earned reputation as a stable, well-run and innovative jurisdiction that maintains a proportionate, flexible and competitive funds regulatory regime.
The introduction of regimes such as the Guernsey Private Investment Fund (PIF) – particularly well received since its launch two years ago – and the Guernsey Green Fund, introduced earlier this year as the world’s first regulated green fund product, show that Guernsey has the tools and vision required to innovate and stay ahead of other jurisdictions.
All that, and the lower costs of establishing and operating a fund in Guernsey, means it will continue to remain attractive to a wide-range of investment managers going forward.
Is there one thing that will dominate the sector in 2019?
Registered funds will continue to dominate the sector in the coming year. Their simplicity and ease of use make them suitable for everything from private funds to public funds, and for more specialist impact and green funds.
What other funds sector issues should be on our radars over the coming year?
There’s likely to be an ongoing focus by investors on fees, but also on seeking ethical returns on their investments. We’ve seen a real shift in recent years in increased capital being directed towards investments focused on environmental, social and governance (ESG) principles, and that’s only likely to increase in 2019.
It’s why the introduction of the Guernsey Green Fund as the world’s first regulated green fund product is such an exciting development for the island. It builds Guernsey’s position as the leading small international finance centre for green finance and demonstrates that we are in tune with the evolving investor and ESG mindset.
From a Carey Olsen perspective, we were delighted to have recently advised ADM Capital Europe LLP on the successful designation of its global agribusiness investment fund, the Cibus Fund, as a Guernsey Green Fund and, in doing so, make it the first regulated green fund of its kind in the world.
PRIVATE CLIENT
Richard Prosser, Group Director and Global Head of Private Client Services, Estera
As we enter 2019, how would you assess the general health of the private client sector in the Channel Islands?
The sector is in very good health, although we continue to see a move to fewer, but bigger opportunities. These bigger opportunities tend to be more complex, take longer to onboard and involve a raft of structures. However, they tend to be more holistic in terms of serving a number of different objectives for the family and their wealth.
In the next 12 months, what’s the biggest challenge the private client sector will face?
The sector will continue to see increasingly complex structures, and practitioners will need to have experience beyond just the basics. In fact, experience and the ability to manage complex relationships with clients will count for everything.
And where will the greatest opportunity lie?
Working with clients to assist them to transfer wealth from one generation to the next will bring opportunities in 2019 and beyond. Organisations that can cater to multi-generational needs will stand to benefit as the importance of succession planning dominates the motivation for new structures.
Families will also look for service excellence and expertise, and the ability for service providers to be flexible and commercial in how they manage structures.
Is there one thing that will dominate the sector in 2019?
Clients and their advisers will be in for a bumpy ride over the next 12 months, as share prices react to testing market conditions. Private client advisers will be challenged to produce above-average returns in what is likely to be a highly volatile market.
What other private client sector issues should be on our radars this year?
Clearly, Brexit is never far from our minds and the possibility of a political change is something that’s already being considered by clients and advisers. The continuing global emphasis on transparency and substance means that our regulatory responsibilities will continue to increase, which will in turn mean that the asset value of new structures is only likely to increase.
Balancing the relationship between transparency and privacy is also of utmost concern for private clients. Jersey and Guernsey as jurisdictions are well placed in balancing these two considerations and advisers must continue to work with clients and educate them on this matter.
The way in which we communicate and work with the next generation can be very different to communicating with the original settlor. Those in the next generation have different expectations and needs, and as trustees it’s our job to maintain the integrity of the settlor’s wishes whilst also meeting the expectations of the next generation.
Peter Marsh (pictured far left), Client Services Director, Equiom Jersey, and Dustyn Molver, Client Services Director, Equiom Guernsey
As we enter 2019, how would you assess the general health of the private client sector in the Channel Islands?
DM: Overall, the private client sector is in a healthy position, with around 21,000 employees in the finance industry in the Channel Islands – some of the highest numbers since before 2008.
With the entrepreneurial nature of clients today, and with many of the private bank-owned trust companies de-risking, an opportunity will present itself for independent trust companies to tailor structures and provide a more bespoke solution for their clients.
In the next 12 months, what is the biggest challenge the private client sector will face?
PM: The sector is faced with additional compliance obligations in respect of transparency and reporting requirements for tax and non-tax purposes. I expect that these obligations will continue to increase in the future, putting greater pressure on the administrative element of private client business. The key to success will be to continue to provide the high-quality service to clients.
DM: What’s also important is efficiently adhering to our regulatory and compliance obligations at the same time. Brexit will still have a big part to play, and with negotiations still ongoing and the UK government in the final throws of signing off on the UK’s exit plan, there’s definitely a ‘wait and see’ attitude. This is especially true when considering the impact on offshore financial centres such as the three Crown Dependencies of Jersey, Guernsey and the Isle of Man.
And where do you believe the greatest opportunities lie?
PM: The Channel Islands have positioned themselves as compliant jurisdictions on the international playing field and have evolved in the past to take opportunities available to them. With some jurisdictions not as well placed to deal with substance requirements from the European Union and the threat of blacklisting, the Channel Islands has an advantage. Those clients who want to be in a more robust jurisdiction may look to relocate their business and may consider the Channel Islands when doing so.
Is there one thing that will dominate the sector in 2019?
DM: Consolidation. We have already seen it happening and anticipate that we will continue to do so. The cost of compliance has become too great for smaller businesses to deal with effectively. Consequently, there will continue to be economies of scale through mergers and acquisitions.
What other issues in the private client sector should be on our radars over the coming year?
PM: UK tax changes will always have a significant impact on Channel Islands businesses. With the upcoming changes to the taxation of UK property and assets that derive their value from such, there will be changes to the administration of structures or possibly restructuring in some circumstances.
In addition, with the consultation on the simplification of inheritance tax by HMRC, it is likely that trustees will need to consider any impacts of that in the future. Other considerations may include the tensions between General Data Protection Regulation (GDPR)/privacy rights versus transparency and automatic/spontaneous sharing of information.
DM: Ethical investing has increasingly come onto the private client radar and I suspect that during 2019, we will see an increase in this type of investment among trustees and their clients. Clients still look for returns on their capital, but they are becoming more mindful of doing right by our community and environment.
BANKING
Warwick Long, Head of Commercial Banking, HSBC Channel Islands and Isle of Man
As we enter 2019, how would you assess the general health of the banking sector in the Channel Islands?
2018 was significant because it marked the 10th anniversary of the start of the global financial crisis, which clearly had a substantial impact on the banking industry around the world and had implications for the industry here in the Channel Islands.
That provided an opportunity to take stock and reflect on where we are now, and the consensus is that we are in good shape. The industry here has been pretty resilient in the face of some significant regulatory changes and a sustained low-interest-rate environment.
Looking at the figures, the indications are that we’re on a steady growth trajectory in the islands, with core customer deposits holding up well and with much greater confidence in the sector’s future. We continue to see increases in lending, as well as companies investing across the islands, building a strong foundation for the years to come.
In the next 12 months, what’s the biggest challenge the banking sector will face?
Brexit continues to dominate business thought processes and decision-making, but the islands are well placed and the banking sector is in a good position to support ongoing business opportunities between the UK and the EU.
Beyond Brexit, there’s a focus on growth strategies, with an increased emphasis on digital technologies and compliance to ensure that the banking sector is growing in a sustainable way.
In order to facilitate this, banks will continue to focus on recruitment. However, sourcing people within the islands, especially local graduates, in what is a competitive environment, is likely to be a challenge as the sector continues to position itself as one that can offer exciting, dynamic, flexible and fulfilling career opportunities.
And where do you believe the greatest opportunities lie?
Last year, managing the ring-fencing requirement was a significant priority for the banking sector and this gave banks in the islands a real opportunity to develop products and services that were much more aligned with the needs of islanders.
The islands are well positioned to capitalise on international opportunities within the banking sector, leveraging cross-border trade flows and facilitating investment into Europe and globally into countries such as China. The international reach of companies across the Channel Islands is vast and the banking sector is well placed to help these companies continue to grow and diversify globally.
Is there one thing that will dominate the sector in 2019?
Digital. Everyone is living and working in an increasingly digitally-led environment and when it comes to personal banking globally, 80% of banking transactions are already made on a digital platform.
In addition to that, we’re seeing a shift into a mobile-first ecosystem, as people look for the kind of personalised, intuitive and simplified journeys they get with everyday apps. There’s no doubt that digital innovation will continue to dominate thinking across the banking sector, as it looks for ways to support customers better.
As the islands look to boost their own international connectivity and brand awareness in key overseas markets, digital capability will be key. Just as Jersey and Guernsey are reaching out to do business around the world, there will be opportunities for banks in the islands to help connect clients and provide services internationally through supportive digital platforms and tools.
The flip side to this is cybersecurity. Cybercrime is very much on the rise, with the sophistication, time and effort invested by perpetrators continuing to increase. Reports of online fraud received by the States of Jersey Police alone rose by 100% year-on-year in 2018.
There’s no doubt that in 2019, banks and other financial institutions will have to focus considerably on this area to boost education around cybercrime and ensure that both customers and the wider community are adequately protected.
What other banking sector issues should be on our radars over the coming year?
There has been considerable change in the banking industry in recent years, but there is a sense that as we look into 2019, there is a renewed positivity about the sector that forms the backbone of the islands’ finance industries.
The islands are emerging from the global financial crisis well, the finance industries are performing impressively, the UK base rate is on the up and helping to support the sustained growth of the sector locally, and banks are emerging from their ring-fencing projects.
All this means that the sector is actually in a very good position to look forward to the future with confidence, implement growth strategies and really focus on the needs of local customers and communities.
Alex Wickens, Senior Associate, Collas Crill
As we enter 2019, how would you assess the general health of Guernsey’s banking sector?
Based on our own practice, the banking sector remains strong in Guernsey. In particular, we find that the breadth of our practice is an encouraging indicator of the sector’s general health.
In 2018, our matters have ranged from real estate transactions, commercial acquisitions, utilities and infrastructure financing, fund financing, group restructuring and refinance and Islamic financing. This diversification shows that Guernsey is no one-trick pony in respect of any particular financial sector or sub-sector, and is well placed to handle the challenges coming its way in 2019.
Of course, the island is not immune to global and European trends, which show a decrease in the amount of activity in the loan market, or to outside competition from Jersey, Luxembourg, the Caribbean and even the UK. It’s the outside competition that has the greatest effect on the sector, even if indirectly.
For example, if Luxembourg continues to increase its market share of the funds space to Guernsey’s detriment, this is likely to have an impact on our funds financing practice. That’s why, as a law firm in general, and specifically as a banking practice, we can’t afford to be myopic in our interests; we need to support all of the island’s finance sectors and sub-sectors.
In the next 12 months, what’s the biggest challenge the banking sector will face?
It may be clichéd, but I have to say Brexit. Just as we saw in the aftermath of the Brexit vote, as we get closer to 29 March, we may see a number of transactions and projects simply grind to a halt as all sides stop and wait for the dust to settle.
The uncertainty is the real barrier for now. We’d expect to see this to some extent even if a Brexit deal were in place, but it will only be exacerbated by a hard Brexit.
And where will the greatest opportunity lie?
Brexit also. First, whilst alternative forms of financing may dry up in volatile times, traditional bank financing will be where businesses turn for their long-term financing over this unstable period.
Second, Brexit itself, especially a hard Brexit, will generate a lot of opportunities. We would expect to see increases in logistics projects and investment into border and port infrastructure, to cope with the changes in how trade is conducted between the UK and Europe.
We also expect to see continued cross-border mergers and acquisitions activity as businesses look to protect themselves from the impact of political issues such as Brexit and the Trump presidency by becoming more international.
Is there one thing that will dominate the sector in 2019?
Excluding Brexit, I don’t see any one thing dominating the banking sector in Guernsey. However, there’s an emerging area that we may see more of in 2019: green financing. The island has launched a Green Fund, there’s a green segment on TISE, and the Guernsey Financial Services Commission has proposals to introduce green insurance. An increase in a green financing sub-sector seems like a logical next step.
What other banking sector issues should be on our radars over the coming year?
I think we can expect to see a working replacement for LIBOR benchmarking by the end of 2019. LIBOR is due to be phased out by the end of 2021 and its replacement has already been identified by the Bank of England as SONIA (Sterling Overnight Interbank Average Rate). The SONIA rate is a benchmark based on historic performance (backwards- looking) as opposed to LIBOR, which is a benchmark based on predicted costs of borrowing (forward-looking).
Mainly for operational reasons, banks and borrowers have not been keen to move to a backwards-looking rate, so SONIA hasn’t started replacing LIBOR in loan documents yet. To address this, the Bank of England established a working group to create a forward-looking reference rate using SONIA. A consultation period with industry concluded in October and we can expect to see the results of that consultation in 2019. I expect that by the end of 2019, we’ll have a working replacement.
TECHNOLOGY
Jason Connolly, Director, Next Generation IT
As we enter 2019, how would you assess the general health of the technology sector across the Channel Islands?
The health of our technology sector closely follows the fortunes of the local finance industry it supports. The islands are experiencing an extended period of strong growth, despite political uncertainty around Brexit and global protectionism.
If anything, challenges stem from a lack of resources, which constrains growth. Consequently, many organisations are seeking mergers and acquisitions to gain capabilities, increase efficiencies, exploit synergies and reduce costs. Happily, this results in more work for us in IT to integrate systems, applications and offices.
Innovation in technology has always been a strength of the Channel Islands and this has spawned a thriving fintech industry. Our experience and contacts within the established finance industry is being coupled with technical expertise to lead the way in fintech – a great example is the application of blockchain to drive investment in private equity funds.
In the next 12 months, what’s the biggest challenge the technology sector will face?
Technology is changing our lives beyond recognition, enabling people to connect to their systems from any device anywhere in the world, allowing people to fill their spare time with work, improve productivity and in many cases spend more time at home with the family. Keeping up with an accelerating pace of change is becoming more and more challenging.
Adaptable businesses that invest in technology can bring their ideas to fruition fastest, disrupt markets and gain market share. However, technology change is expensive and traditional fixed capacity onsite IT systems cannot adapt rapidly or cost effectively. An accelerated uptake of cloud computing will give local businesses access to flexible IT infrastructure that grows and adapts with a business, driving digital transformation.
And where will the greatest opportunity lie?
Experts predict we are entering the fourth industrial revolution, where unrelenting technological progress is blurring the traditional boundaries between physical, digital and biological realms. This means there are great opportunities for increases in efficiency and standards of living.
Previous industrial revolutions have automated repetitive manual tasks, but artificial intelligence (AI) is targeting knowledge workers, such as accountants, bookkeepers, administrators and legal advisers. With a constrained labour market, AI presents a great opportunity to augment our local resources to generate more value for the islands.
Is there one thing that will dominate the sector in 2019?
Information security challenges are increasing, with many local organisations succumbing to ransomware attacks in 2018. The frequency and complexity of attacks continue to increase exponentially, and cyber security is now firmly on the boardroom agenda. Businesses are rolling out stronger cyber controls and awareness training to combat the risks – for instance, security companies are employing AI in their products to fight back.
Interestingly, local business and the regulator are being proactive and view cyber security as a competitive advantage. Financial and data protection regulations are driving businesses to focus on security, procedures, auditing and monitoring.
Audits are now assessing businesses against stringent ISO, ISAE and PCI DSS standards. This will lead more businesses to consider hosted services in 2019, through which best practices in security and IT are baked into the service.
What other technology sector issues should be on our radars over the coming year?
Earlier this year, the General Data Protection Regulation occupied the attention of many local businesses, but then businesses were given an extended 12 months to prepare. The reprieve was welcome as most businesses have taken advantage of the extra time to get their house in order. Nevertheless, we expect that the pressure will build again in 2019 as the new May deadline looms.
CAPITAL MARKETS
Fiona Le Poidevin, CEO, The International Stock Exchange Group
2018 was another year when we built on the successes of previous years to deliver further growth in the number of new listings on The International Stock Exchange (TISE). The largest proportion of new listings have been debt issuances, such as high-yield bonds, from issuers based all around the world, including Europe as well as increasingly the US and the Far East.
As such, we’ll be continuing to monitor the global capital markets to understand how this might have an impact on our business. We’ve already seen interest rate rises and geopolitical events starting a slowdown of issuances in the debt capital markets, so the effect on the number of listings on TISE will have to be monitored closely. Either way, we’ll aim to continue to increase our share of the market.
Of course, Brexit is also on the minds of many with UK-related business. Our business is global but there remains a significant proportion of debt issuances that are financing acquisitions in the UK, and we are home to more than a quarter of all UK Real Estate Investment Trusts (REITs).
This is an area where, following a hiatus around the Brexit referendum in 2016, there’s been strong growth in the past few years, not least due to the currency fluctuations precipitating considerable inflows of international capital into the UK real estate sector via the REIT product.
In the post-Brexit referendum environment, we’ve benefited from being able to facilitate investment into UK property. As we approach the UK’s withdrawal from the EU, there’s been no discernible negative impact on TISE listings and, at the time of writing, it remains to be seen whether any of the fears about the markets materialise and therefore the effect for us in terms of new listings.
In fact, we continue to see potential opportunities in Brexit, including the listing of UK small and medium-sized enterprises (SMEs). The UK government views SMEs as the engine of the UK economy through Brexit, but those companies are finding financing more of a challenge than ever.
TISE offers the advantages of a stock exchange listing, including access to a new pool of capital, but with costs that are proportionate to SMEs.
In addition, being based in the British Crown Dependencies means that we offer the certainty and stability of already being outside the EU while still being part of the British family.
We’ve also had growth in the number of enquiries from Channel Islands trading groups, which have seen how TISE’s proposition has benefited companies with the scale and ambition of businesses such as PraxisIFM. The door is very much open to local business owners who want to find out more about the process of listing and the potential benefits it can offer. I expect we will be having plenty more of these conversations during 2019.
I also expect that in 2019, both globally and locally, we will see increased prioritisation of environmental, ethical and impact investing. The focus on environmental sustainability in recent years has led to an established and growing sector of green finance.
As a result, in November last year, we launched a new market segment of the Exchange, TISE GREEN. This has been established to enable those seeking funding for environmentally beneficial initiatives to highlight their green credentials, while also providing easier access for investors looking to allocate to investments verified as meeting globally recognised standards in green finance.
During 2019, we will be monitoring this marketplace to ensure that, as it develops further, we will continue to be able to offer a product that’s suitably comprehensive and robust.