Developing together

Collaboration between the Channel Islands and the City and forward-looking regulators are helping the fintech sector to thrive in both jurisdictions 

The fintech ecosystems of Jersey and Guernsey have certainly begun to flourish in recent years, confirming the burgeoning sector’s place in the islands’ business landscape. 

Jersey is now home to the world’s first regulated bitcoin investment fund – Global Advisors Bitcoin Investment Fund – which was listed in December 2016. 

A year later, Jersey’s first initial coin offering (ICO) was launched by ARC Fiduciary, which created its own ‘ARC coins’ on the Ethereum blockchain.

The objective was to enable coinholders to purchase a cryptocurrency designed to operate as a so-called ‘stablecoin’, which seeks to remove the volatility normally associated with crypto and to focus on price stability. 

Jersey was also one of the first jurisdictions to formally adopt a regulatory regime for virtual currencies. Under this regulation, start-ups involved in virtual currency exchange are exempt from paying fees to the regulator, the Jersey Financial Services Commission (JFSC), until they reach a certain turnover threshold. 

This forward-thinking regulatory approach is being applied in other areas as well – and it has proved vital in cementing Jersey’s standing as a successful digital jurisdiction. 

“The regulator’s role is to direct and guide the areas of fintech that the jurisdiction wants to pursue,” says Paul Worsnop, Senior Associate at Appleby and joint lead for the firm’s fintech initiative in Jersey.

“Each jurisdiction has a different focus. Across Africa, for example, there is an emphasis on financial inclusion and mobile money, whereas Jersey is more focused on cost and time savings, efficiency for financial institutions, and Know Your Customer/regtech. 

“The Government of Jersey and the JFSC are promoting this agenda and we’re seeing specialist fund technology providers, regtech firms, and payment and trading platforms choosing Jersey as their base.”

Punching above its weight 

The JFSC’s innovation hub is a strong example of a local regulator working collaboratively with industry and sector bodies, such as Jersey Finance and Digital Jersey, to attract these ambitious fintechs. 

The island’s traditional strength in professional services is important. “We have lawyers, accountants, bankers, anti-money laundering (AML) experts, and so on,” says Worsnop. “We’re punching above our weight. There’s a lot of knowledge and skills among our 100,000 residents for fintechs to lean on. 

“In addition, we’re very accessible. Someone can fly in and meet decision-makers from government, the regulator and bodies like Digital Jersey, all in one morning. This can take weeks, if not months, in larger jurisdictions.”  

According to Worsnop, the regulator can help remove one of the main blockers for start-ups: uncertainty. 

Its progressive regulatory approach means Jersey offers a sandbox location to develop, test and launch new technology in a campus-like environment, without the high cost and complex legal, government and regulatory barriers often faced in other cities or markets, he says.

The same is true of Guernsey, where the Guernsey Financial Services Commission (GFSC) is working to attract the right fintech businesses. 

With its highly regulated business community and limited marketplace, Guernsey is another good testing ground for new products and services. 

Fintechs operating from the island can roll out their product and develop a better understanding of it, evolving quickly in an environment that provides regulatory certainty. 

“Guernsey’s regulator aims to offer confidence, certainty and guidance on the application of fintech in financial services,” says Andy Sloan, Deputy Chief Executive, Strategy, at Guernsey Finance. “It enables safe innovation by providing an environment where greater risks can be taken within a suitably chaperoned environment.

“Early last year, the GFSC outlined an approach to provide greater regulatory assurance in the application of electronic client due diligence. Guernsey’s strategy is to support a market-based approach to the application of technology in anti-money laundering. 

“Certainty, clarity and confidence in the regulatory approach are key for the application of technology and its widespread adoption, and it has been important that the GFSC helps to create these conditions to support the adoption of technology-based AML solutions.”

Collaborating across borders

The JFSC and GFSC liaise closely with their regulatory peers around the world to learn from them in their quest to further develop fintech on the islands. Both are active members of the Global Financial Innovation Network (GFIN – see box), launched last year to encourage fintech innovation and knowledge sharing, as well as cross-border trials of new technology.

“GFIN means the JFSC and GFSC have an excellent network of contacts and relationships in fintech and far beyond,” explains Worsnop.

“Before Covid-19 there were regular conferences in London and other business hubs, and now – like everyone – we have to adapt and further consolidate these relationships over the likes of Zoom.” 

Sloan adds: “Guernsey’s underlying mission is to enable the widespread adoption and application of technology in financial services with a safe and secure environment.

"That’s a common goal and so it fits well with the island’s engagement in international and supranational bodies, including GFIN. Guernsey is committed to working collaboratively and internationally.”

London is a particularly close ally. The UK is regularly ranked as one of the most ‘fintech friendly’ cities in the world. And a significant element of the UK’s appeal to fintechs is the collaborative approach to regulation of the Financial Conduct Authority (FCA) with businesses in the sector. 

Initiatives such as the FCA’s Project Innovate and its Regulatory Sandbox have helped fledgling businesses to introduce and test new financial projects and distribution methods, establishing the UK as a leader in fintech and as a global authority on progressive fintech regulation.

Both the JFSC and GFSC maintain a strong working relationship with the FCA, which is a fellow member of GFIN. 

“Clearly London is at the vanguard of fintech,” says Sloan. “I was at an FCA presentation just a month after the launch of the FCA’s Regulatory Sandbox, and a contact confided in me that, at that time, the sandbox was basically a differently coloured telephone. 

“To show what grows from little acorns, that sandbox now leads the world in this area, and the FCA’s approach is being copied around the world.”

London also provides a useful source of support in areas that require further development. “Given the size of our respective populations, it’s no surprise that London is currently more advanced on the technology side,” says Worsnop. 

“We’re addressing this gap through education programmes and the like on the island, but London is a great example to follow and learn from – look at the Old Street Roundabout, and the fact that every law firm now has its own tech incubator.”

As the business world adjusts to the new normal and considers how financial technology can help solve problems and boost economic recovery, such collaboration will be invaluable. As will the forward-looking regulators of the Channel Islands. 

• This article was first published in BL City Edition 2020 in October 2020