The Channel Islands v The World

Written by: Dominic Dudley Posted: 01/06/2019

BL62_wealth hubsHow do Guernsey and Jersey compare with other financial centres around the globe?

Competition between international financial centres has never been more intense. Governments all over the world are scrambling to develop a presence in the lucrative world of wealth management.

To get a sense of how widespread the trend is, just take a look at The Global Financial Centres Index produced by Z/Yen, which features more than 100 entries, from heavyweights such as New York to minnows including Almaty in Kazakhstan.

Some hubs serve their domestic market, while others focus on cross-border business. For the likes of Guernsey and Jersey, international clients are most important, and the competition for them even more focused.

A good overview of rivals in this corner of the sector comes in the form of the International Wealth Management Centre Ranking by consultancy Deloitte.

The Deloitte report homes in on international market volume (IMV) – the value of assets managed in a different location to where the asset owner lives. This is a lucrative niche. According to Deloitte, IMV comprises $8.6trn of the world’s financial wealth of $175trn. 

Guernsey and Jersey aren’t included in the report, but nine other hubs are (see box). As the report points out, these financial centres face challenges from stiff international competition and cost pressures. Service quality and digital maturity are becoming more important than tax and regulation issues, it says, leading to a ‘flight to quality’. 

Larger centres are better at addressing these issues. The report notes that smaller hubs have been losing ground, concluding that there’s a growing divide between the best and the rest. ‘Switzerland, Singapore, Hong Kong, the US and the UK, and also Luxembourg to some degree, have been broadly successful, but the UAE, Bahrain and especially Panama and the Caribbean much less so,’ it says.

It’s not easy to speculate how well the Channel Islands would perform if they were included in the rankings, given Deloitte’s reliance on qualitative interviews and a proprietary database, but there are reasons to suppose they would do well, given their long history as financial centres.

Dominic Wheatley“We’ve been in this game since the 1950s and over that time we’ve developed a substantial private client community and a lot of expertise and substance,” says Dominic Wheatley (pictured), Chief Executive of Guernsey Finance.

“The Channel Islands are very much at the quality end of the market. We’re not trying to compete for routine work. Where we have a significant advantage is in the sophistication required in areas such as family offices and more complex structures.”

Among the strengths that experts on the ground note are the Channel Islands’ political and fiscal backdrop and their wide pool of expertise. “A key strength of the Channel Islands is their stability, in terms of government, legal system and rule of law,” says Julian Davies, Managing Director of training firm CLT International.

“The Channel Islands are arguably the world’s leading trust jurisdictions,” adds Geoff Cook, Chairman of investment manager Quilter Cheviot Jersey. “With over £1.3trn managed or administered from the Channel Islands, they are a global player in wealth management terms.”

The Channel Islands’ political status is also an advantage over other hubs. As Crown Dependencies, Guernsey and Jersey are masters of their own destiny in a way that British Overseas Territories in the Caribbean are not.

And the Channel Islands have been given a clean bill of health by the European Union, while the UAE and six Caribbean and Central American jurisdictions are all on the EU’s list of non-cooperative tax jurisdictions.

All this helps to explain why the Channel Islands have been capturing work from rivals. “In the fiduciary sector, the Channel Islands have grown in popularity exponentially in the past few years, with a shift away from using BVI companies in favour of Guernsey and Jersey companies,” says Matthew Gilligan, Client Relationship Manager for Guernsey-based fiduciary, family office and fund administration services group Louvre Trust.

There’s always room for improvement though. Among the biggest challenges facing the Channel Islands industry is the competition for talent, with unemployment in Guernsey and Jersey running at between just 1% and 2%. 

“There’s a very tight jobs market and it can be hard to find the right employee,” says Davies. Locals are responding to this situation, he adds, with some school-leavers going straight into work in the financial industry and being given a professional education, training with their employers rather than going to university.

There have also been signs that the Channel Islands may have been caught by one of the key trends cited in the Deloitte report – the increasing concentration of assets in larger hubs.

But the evidence is mixed. Jersey, for example, saw the value of bank deposits shrink from £212bn in 2007 to £114bn in 2016, but there has since been an upturn to £123bn by the end of 2018. 

On the other hand, the value of funds under administration has risen in most years since 2009, reaching £320bn by December 2018. 

There has been a similar situation in Guernsey, where bank deposits fell in the period from 2009 to 2015, but there has been something of a recovery since then. Funds under management and administration have also been rising in recent years to reach £282bn by the end of 2018.

For the Channel Islands to maintain their international position, there needs to be a continuous process of investment in areas such as training and regulatory innovation. 

Geoff-Cook_GF_2018Cook (pictured right) points to the development of new international savings plans and green investment funds as examples of areas in which the islands are currently enhancing their offerings.

Physical infrastructure is also important. Gilligan says improving air links between the islands and continental Europe “would undoubtedly improve tourism into the islands, but would also offer European clients more direct routes to the islands and in turn develop business relationships further”.

While such factors are important at a time of political upheaval in larger jurisdictions such as the UK, perhaps one of the greatest assets associated with the Channel Islands is steadiness. “Jersey and Guernsey are truly safe harbours for international capital looking for a secure and respected home,” says Cook.

International Wealth Management Centres

The financial centres featured in the Deloitte International Wealth Management Centre Ranking 2018 are listed below in alphabetical order – the figures denote International Market Volume (IMV) and percentage of total IMV: 

1. Bahrain $0.06trn 1%
2. Hong Kong $0.79trn 9%
3. Luxembourg $0.26trn 3%
4. Panama & The Caribbean $0.60trn, 7%
5. Singapore $0.47trn 5%
6. Switzerland $1.84trn 21%
7. UAE $0.01trn 0%
8. UK $1.79trn 21%
9. US $1.48trn, 17%

Between them, the nine hubs listed here account for 85% of international market volume. The remaining 15% is split between Guernsey and Jersey and other centres, mostly around Europe. According to Deloitte, the Channel Islands are not included in its report because the rankings are based on country-level data that’s not always available for the islands.
 
Jurisdictions are ranked on competitiveness, size and performance. The leader on all three measures is Switzerland; Singapore is second in terms of competitiveness and performance; the UK is second in terms of size. At the other end of the scale, Panama & the Caribbean comes last in terms of competitiveness and the UAE is the smallest. The US is ranked worst for performance, although Bahrain, Panama & the Caribbean and the UAE are not included in this metric.

There are myriad underlying elements to the rankings. The competitiveness score is based on 41 factors covering everything from labour market efficiency to the quality of the education system and the fairness of judicial processes. The size ranking is based on IMV assets. The performance criteria are focused on revenue, cost and profit margins. 

 


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