Interview: A tale of two islands

Written by: Kirsten Morel Posted: 27/06/2018

City_Amy and DomThe Channel Islands’ relationship with the City of London goes back decades, but just how important are the islands to the City and vice versa? We spoke to Amy Bryant, Deputy CEO of Jersey Finance, and Dominic Wheatley, CEO of Guernsey Finance, to find out more

So, the big question first – how important is the City of London to the Channel Islands?

Dominic Wheatley: It’s demonstrably important, as it’s our nearest world-leading finance centre. London attracts finance from around the world and, as a result, it’s critical to the future of finance in the Channel Islands.

Amy Bryant: I agree wholeheartedly. The relationship is a long-standing and greatly valued one that’s viewed as a partnership. The UK is the largest trading partner for both islands and I think I can safely say that our aim is to continue working with the City for as long as possible.

Looking at it the other way, are the islands important to the City?

AB: It’s definitely a mutually beneficial relationship. Speaking specifically about Jersey, we act as a capital magnet and help sustain 250,000 jobs, bring in £5bn of tax revenues and provide £14bn in terms of net benefit to the UK. The relationship is about the sharing and blending of our expertise and getting the most out of the synergies between the two, including the global network that both Guernsey and Jersey give to the City. 

DW: I’d say it’s a symbiotic relationship in which London benefits from having the islands available as part of its suite of offerings – but it’s also dependent on us maintaining the standards of quality that London is known for. Because of the volume of business it does, the City has a more generic style of regulation whereas, because of our size, the Channel Islands can be more focused on specialist areas.

On that subject, in what sectors do the islands do most business with the City right now?

DW: In Guernsey, we have a lively insurance sector and last year we saw growth in our private equity sector. We’re also seeing growth in risk financing, and insurance-linked securities had an interesting year. The islands also offer expertise in operating globally and working with other jurisdictions. This is an asset in the corporate wealth and pensions arenas, where we’re seeing a lot of clients with international requirements.

AB: As far as Jersey is concerned, the main areas are banking, private wealth, capital markets and funds. Jersey is a jurisdiction of choice for listing funds on the FTSE and we’re also the principal partner for property investment in the UK. The deal involving Battersea Power Station, which was structured through Jersey, is an excellent example of this.

Is this likely to remain the same, or do you expect more business to come from different sectors via the City?

AB: We expect Jersey’s broad appeal to continue, but there’s likely to be an evolution, and I see two clear trends developing – in new markets and technology. First, the City has stated that it wants to work with growth markets and, for us, this means the UAE, China, Saudi Arabia, India, South Africa, Kenya and Nigeria, among others. The second trend is the pace of digitisation, which we see as vital to remaining focused and ahead of the pack.

DW: For Guernsey, the funds sector is significant and we already have expertise in private equity and particularly in listed funds. Over the coming period, however, we expect to see growth, particularly in impact investment and green funds. Insurance-linked securities as a portfolio balancing asset are attractive to investors, so there’s certainly good scope for this area to develop. Also, changes to pension regulation mean that we now see good growth prospects in personal international pension arrangements.

While the end result of Brexit is unknown, does the fact that the City may become a third country pose a threat to the islands?

DW: In short, no. We’re complementary to London’s offering. They’re partners with us in what we do as finance centres. Business moving to other finance centres isn’t a threat because our relationship with the EU is independent of London. We have a private placement regime for the distribution of funds – but having said that, we don’t have relationships with other EU jurisdictions, as we do with London. It’s also worth noting that financial centres in the EU don’t have the same capabilities as London – so if business moves, it won’t be to Frankfurt or Paris, but to Singapore or Hong Kong.

AB: I’d echo Dominic’s sentiment here. Neither Jersey or Guernsey are members of the EU, nor are they part of the UK. Given the UK’s wider desire to achieve a good settlement with the EU, it’s unlikely they will want to become an offshore centre to compete with the Channel Islands. With regard to passporting, our private placement regime works effectively and is seen as a stable place in the funds sector. Jersey facilitates £0.5trn worth of foreign direct investment into the UK, which is about £1 in £20 of FDI into the country. While we might see a short-term dip following Brexit, in the long term there’s still a lot of potential.

Have sensational headlines over the years – such as around the Panama Papers – affected the way the islands are perceived in the City?

DW: Not in my experience. I think it’s important to remember that our partners in the City are very much professionals who look at the objective facts of the situation rather than the way they’re portrayed in the media. It’s also important to note that assessments from international standards organisations find us to be very compliant and we’re judged on that rather than the media portrayal.

AB: We don’t want to side-step these issues, but the people who work with us know what we’re all about. Speaking specifically about Jersey, they know that we have an excellent, stable and consistent policy regime, but it’s the breadth and depth of expertise that attracts people here irrespective of the headlines.

You mention international assessments – what are your City contacts saying about the Channel Islands’ adherence to ever-changing regulatory standards?

DW: The City’s view is that we’re a leader in international standards and our record is second to none. Every time we’re assessed, we’re found to be in the vanguard of international jurisdictions. On the AML front, they’ve always found that we’re more compliant than anywhere else in the world.

AB: I’d definitely second that. Our leading regulatory position is recognised by others who see that we’ve been at the forefront of transparency and cracking down on tax evasion. The EU Code Group has recognised both islands as meeting these standards and being world-leading in terms of regulatory compliance. We also received very positive assessments in terms of compliance by Moneyval. It’s critical we continue to deliver at the highest standards. Clients want this, and it’s part of our appeal as international finance centres. 

There’s been quite a lot of M&A/private equity activity in the Channel Islands over recent years – is that a sign of strength in the sector?

AB: Worldwide M&A activity has exceeded $3trn and is set to increase, and this is definitely something we’ve seen actively reflected in Jersey’s finance industry. Locally, there’s been a continued consolidation in the fiduciary sector. We see this as a positive because it gives clients a whole range of providers to choose from – niche boutique providers to multi-jurisdictional groups.

DW: I’d definitely agree that investment into the finance sector is a sign of confidence, and our ability to attract investment from serious institutions is an endorsement of the islands. 

Many commentators have said tax is no longer a key driver for using the Channel Islands, but is this really the case?

DW: From my experience, tax isn’t a driver. The driver is our ability to create a niche environment for businesses. Our regulatory environment is specifically designed for corporate risk transfer vehicles and not commercial insurance – so the regulatory approach is more appropriate here than the UK, and has, for instance, led to growth in insurance-linked securities business in Guernsey.

AB: Clients choose Jersey for many reasons, including the depth of expertise, regulatory environment, connectivity and the range of products and services that we have available. Tax certainly isn’t a key driver any more, but tax neutrality is. However, it’s important to emphasise that this isn’t tax evasion – it ensures that tax isn’t paid twice.

Do the islands’ population controls limit growth and opportunities for the islands?

AB: I don’t think that it’s really a limiting factor. While I understand why some people might think that way, it’s important to look at the figures. Employment in finance increased by 230 jobs last year and is the highest it’s been in nine years. More than 3,000 young people have found their first jobs in the finance industry in the past 10 years. Finance is a major contributor to the island, providing more than £420 million in taxes.

DW: Access to talent is important, and to continue to have access to it is key, particularly when you have a new and developing market. And I think Guernsey’s new housing policies are useful in that regard. It’s up to Guernsey how much it wants to limit the population. I’m not sure we’re full, and the current arrangements aren’t limiting in themselves. In fact, the island being in control of its own destiny is an important part of our stability.

How are the islands doing in the fintech and regtech spaces – and is the City interested in this? 

DW: Yes, the City is definitely interested because it’s doing a lot of work in those areas. There are funds set up to promote and support new businesses, and the use of blockchain technology in finance has received considerable attention. For example, Northern Trust is using blockchain for fund technologies and is working with PwC to use it in the audit process.

AB: I’d agree that there’s definite interest. In Jersey, we’re driving a practical agenda and have developed a good track record, including setting up the first bitcoin investment fund. The island’s first ICO also happened recently. We’ve got a great partner in Digital Jersey and we have a strong enabling environment.

Are there any new products in the pipeline that might be of interest to the City?

AB: I think the Channel Islands must always remain focused on the future. In 2017, both islands brought new products to the market – in our case, the Jersey Private Fund regime. The updated charities law and a charitable register will be set up in 2018, highlighting Jersey’s push into philanthropy. We’re certain that by focusing on new projects, Jersey will become a digital centre of excellence and move ahead of the competition.

DW: Green finance is an area of growing investor interest and I’m aware of projects in Guernsey looking at the use of insurance technologies to meet the disaster response requirements of the third sector. In private wealth, like Jersey, we’re looking at how to develop and enhance the trend for institutionalising the philanthropic efforts of families.

Finally, what’s your view on the relationship between the City and the Channel Islands in the next 24 months?

DW: Ironically, to steal a phrase from the EU – ‘ever closer union’. We see Guernsey’s relationship with London as being part of our success and a key part of where we’re positioning the island. The biggest part of Brexit is that by moving the EU border into the North Sea, we’ll see opportunities for us to strengthen relationships with the UK.

AB: There’s no doubt in my mind that Jersey will continue to support the City’s growth ambitions, and by working together we can both continue to be successful. 

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